Delays in UK state pension scheme could subject family payouts to tax — The Guardian

In the United Kingdom, families of deceased civil servants may face taxation of lump-sum pension payments because of delays in the Civil Service Pensions scheme, administered by Capita. Under UK tax authority rules, if a civil servant died before the age of 75, such payments are tax-free only if they are made within two years of the date when the scheme became aware of the death.

More than 1,600 claims

As The Guardian reports, more than 1,600 families of deceased civil servants have been waiting over 100 days for claims for death-in-service benefits to be processed. Some claimants said that the delays were making it difficult for them to pay bills.

Geoffrey Clifton-Brown, the Conservative chair of the House of Commons Public Accounts Committee, said that due to problems with the scheme, the likelihood of payments being made within the two-year deadline was low. The committee called for legislation to be changed so that relatives do not suffer financial losses because of administrative delays.

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Complaints and compensation

The UK Cabinet Office, which is responsible for the scheme, said it could not prevent the tax authority from taxing late payments. At the same time, those affected can seek redress through the Pensions Ombudsman. According to the ombudsman’s estimate, handling cases may take around 18 months because of the large number of complaints.

Last December, the contract to administer the pension scheme, which covers 1.7 million members, was awarded to Capita for £239 million. The Cabinet Office later acknowledged that the level of service was unacceptable and said it was withholding nearly £10 million in payments from the company. The department also said that existing complaints mechanisms could provide financial compensation in the event of tax losses caused by delays.