The government has announced loans of up to £20,000 and other measures to support people affected by what it calls 'entirely unacceptable' delays in the Civil Service Pension Scheme (CSPS), which has around 1.7 million members. Around 150,000 outstanding administration cases were reported as of October 5, with some bereaved families and retired civil servants at bodies such as HMRC and DWP waiting months for payments.
Five measures to address financial hardship
In an update, the Cabinet Office outlined five steps being taken to address immediate financial issues among those affected by the backlog. These are: loans of up to £20,000; lump sum payments to provide immediate funds; interest on benefits paid late; the deployment of more than 140 staff to tackle backlogs; and work to speed up exceptional cases.
Sally Jameson, Parliamentary Secretary and Parliamentary Under-Secretary of State at the Cabinet Office, said the government had taken 'direct action' to help those facing financial hardship. She said special attention was being given to high-impact and vulnerable cases, specifically bereavement, death-in-service, and ill-health retirement awards, in order to clear backlogs.
Interest-free bridging loans and late payment interest
Jameson said: “To provide immediate financial support to those who may need it, including those who have left under the compensation scheme, arrangements are in place for interest-free bridging loans of £5,000 and up to £20,000 in exceptional cases - to most recent retirees facing payment delays. This is alongside interim lump sum payments being made to provide immediate funds to retiring members.”
She also said the CSPS is introducing a temporary process to pay interest on benefits paid more than one month after a member’s retirement date. She said: “This applies for those who receive retirement payments after 1 December 2025, and interest will be calculated at the Bank of England base rate plus 1%. Capita will automatically calculate the interest owed.” Members do not need to apply.
Backlog clearance and accountability
The minister said that all outstanding ill-health retirement and death-in-service cases have been placed under closer scrutiny to deal with them more quickly. More than 140 civil servants along with other experts have been deployed to 'bypass standard queues' and 'directly clear the oldest and most complex cases'. Cases with exceptional circumstances are also being considered for prioritisation on a case-by-case basis. In addition, the Cabinet Office has set up dedicated “virtual surgeries” for MPs and caseworkers to speed up urgent and exceptional cases directly with a Capita caseworker.
Jameson's answer came after former shadow chancellor John McDonnell asked the Cabinet Office “if it will commit to an urgent, accessible hardship escalation process for affected members of the Civil Service Pension Scheme, including interim payments and loans where appropriate, with clear ownership and timescales.”
Jameson blamed the previous government for the awarding of the contract in November 2023 and recently described Capita's attempt to deal with the delays as 'abysmal'. In her reply to McDonnell, she said: “The current delays facing scheme members are entirely unacceptable, and the Government continues to hold Capita to account for delivery of the service, applying all contractual levers. This includes withholding £9.9 million in contract payments for undelivered milestones. We intend to seek to recover all the Government’s delay-related costs, and that Capita bear the costs of their failure, not the taxpayer.”
She told McDonnell that independent auditors had been sent in to conduct a review and said an update would soon be provided to Parliament. She said work was taking place to bring the pension scheme “back in-house”.
Apologies and tax rule change
Speaking about the delays to Pensions Age last week, Civil Service Pensions director Richard Vianello said: “I remain deeply sorry that performance is not where it should be, and for the impact this is having on so many of you.” Capita said in a statement last week that it was “deeply sorry for the frustration that the administration of the Civil Service Pension Scheme has caused members and their families”. It also said: "We know that behind every outstanding case is a person waiting for the pension they have worked for and are entitled to receive, or a family trying to get support at an already incredibly difficult time."
The update comes as a change was made at chancellor John Healey's first Budget. It was announced on Wednesday last week that grieving families would no longer get a tax bill because of long delays in CSPS payouts. Rules until then meant that some lump sum pension payments needed to be paid within two years of the CSPS being told of a death in order to remain tax-free.
Announcing the change, pensions minister Torsten Bell said: “The Government has removed the two-year deadline for pension and lump sum death benefits to be paid tax-free where the member died before age 75. Under the change, payments made on or after 28 October 2026 will no longer become taxable solely because more than two years have passed since the pension scheme first knew, or could reasonably have been expected to know, of the member’s death. The existing requirements relating to the deceased member’s age and availability of Lump Sum and Death Benefit Allowance will continue to apply. The change will apply to payments made from 28 October 2026, including payments relating to deaths that occurred before that date. It will therefore protect beneficiaries awaiting payment when the change takes effect.”
Unfortunately for Rob Wassell, who waited more than two years after the death of his brother before getting the lump sum from his civil service pension, his case and others before October 28 are not affected by the change, meaning he and others have faced unavoidable tax bills. He told the BBC the process had been an “ordeal”.
