Budget rule change shields bereaved families from tax on delayed civil service pensions

The government has changed the rules so civil service pension lump sum payments to bereaved families will no longer become taxable solely because they were paid more than two years after a death. The change, announced in Wednesday's Budget and applying to payments made from 28 October, was confirmed by Pensions Minister Torsten Bell in a letter to the Public Accounts Committee chairman Sir Geoffrey Clifton-Brown.

The rule change follows campaigners' warnings that families faced financial penalties due to delays not their fault. The Civil Service Pension scheme, administered by Capita since December 2025, has seen its backlog grow to 120,000 cases by February, with 1,643 bereavement or death-in-service cases over 100 days old as of 30 September.

Bell said the move makes the position fairer for all grieving families, but added that removing the tax deadline does not remove schemes' wider duties. Sir Geoffrey and the PCS union welcomed the change but said it does not absolve Capita from timely processing, with the union calling for the scheme to be brought back in-house.