The change applies across pension schemes from 28 October 2026. Where the member died before 75 and had enough remaining allowance, delays beyond two years no longer make lump sums taxable.
The UK government has removed the two-year tax deadline for qualifying pension death-benefit payments made from 28 October 2026. The change applies across pension schemes, protecting bereaved beneficiaries from losing tax-free treatment solely because their payment takes too long.
Previously, the clock started when the pension scheme first learned of the death, not necessarily on the date the person died. A payment beyond two years could become taxable even when neither the administrator nor the beneficiary controlled the delay. Tax-free lump sums still require the scheme member to have died before age 75 and to have enough remaining Lump Sum and Death Benefit Allowance—the limit on qualifying tax-free lump sums.
Pensions minister Torsten Bell confirmed the change in a letter to Sir Geoffrey Clifton-Brown, chairman of the UK’s Public Accounts Committee. Bell said it would make the position fairer for grieving families and friends facing delays, whether in the Civil Service Pension Scheme or another pension scheme.
The payment date matters. Rob Wassell told the BBC that he received a lump sum from his brother’s civil service pension on 27 October, after waiting more than two years. The payment arrived one day before the new rule took effect and was taxed at 45%, costing him thousands of pounds. He is awaiting a complaint-review decision on whether that tax will be reimbursed.
For people already taxed because of avoidable delays, Bell identified compensation through the pension scheme’s complaints process and the Pensions Ombudsman, which decides unresolved pension complaints. The new payment rule does not itself provide automatic reimbursement for those earlier cases.
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The Pensions Ombudsman’s rules set out the route for an unresolved complaint about financial loss:
The Civil Service Pension Scheme covers 1.7 million public sector workers. Capita, an outsourcing company, took over its administration from MyCSP in December 2025 after a two-year transition period. The UK’s Cabinet Office retains overall responsibility for the scheme.
| Date | Cases | What the figure covers |
|---|---|---|
| December 2025 | More than 86,000 | Backlog Capita said it inherited |
| February 2026 | 120,000 | Overall backlog |
| 30 September 2026 | 1,643 | Outstanding bereavement or death-in-service cases more than 100 days old |
Retired civil servants and bereaved families have waited months for payments, with some struggling to pay bills. The Cabinet Office previously said only a small number of the outstanding bereavement cases were approaching the two-year threshold. PCS, the union representing civil servants, had questioned how long cases would remain unresolved.
Bell said removing the tax deadline did not remove schemes' duties to administer pensions prudently and without avoidable delay. Clifton-Brown welcomed the change but said Capita remained responsible for processing and paying benefits promptly. PCS general secretary Fran Heathcote also welcomed it, criticised Capita’s performance and called for administration to be brought back in-house.
Capita has apologised for the impact of delays. It says it is working to clear outstanding cases as quickly as possible, prioritising people who have waited longest and those facing financial hardship or challenging circumstances.
The next legal step is legislation in Finance Bill 2026–27 to amend the Finance Act 2004 and the Income Tax (Earnings and Pensions) Act 2003. HMRC’s policy specifies that the change takes effect for payments from Budget Day, 28 October 2026: administrators no longer have to deduct and pay tax solely because the two-year period has passed.
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