Pension delays could saddle bereaved families with tax bills on death benefits

MPs have warned that delays in the Capita-run civil service pension scheme could leave bereaved families facing tax bills on lump-sum death benefits. Payments are tax-free only if made within two years of the scheme being told of the member’s death, so administrative delays could make families pay tax through no fault of their own.

More than 1,600 families have waited over 100 days for a claim to be processed, and some say they are struggling to pay bills. The Cabinet Office says it cannot stop HMRC applying the tax rules and that families may need to seek reimbursement through the Pensions Ombudsman, where cases can take 18 months. The £239m contract moved to Capita last December; the government has called service levels unacceptable and says it is withholding nearly £10m in payments while holding the company to account.