Bereaved families affected by the delays in paying out civil service pensions could be hit with an “unjust” tax, a parliamentary watchdog has warned.

Public Accounts Committee chair Sir Geoffrey Clifton-Brown wrote to first secretary of state Louise Haigh last week, saying he had learned “with disbelief” that the government “intends to tax pension benefit payments for families of deceased civil servants if a lump sum is not paid within two years”.

Tax legislation states that where a lump sum is paid outside of the statutory two-year window, the payment becomes taxable at the beneficiary’s marginal rate of income tax.

Clifton-Brown raised concerns in his letter that “the chaos currently engulfing the Civil Service Pension Scheme means that the likelihood of death benefit payments being made within two years is slim”.

Responding this week, Cabinet Office minister Sally Jameson said “neither the Cabinet Office nor the scheme administrator has statutory discretion under tax law to alter or waive these tax charges”. She added that she had asked officials whether there is any flexibility to apply an exemption and established that there is not.

However, she committed that “where administrative delays by the scheme lead to an avoidable tax charge, beneficiaries will not be left out of pocket”.

Jameson said the Cabinet Office is working with Capita to ensure that the oldest outstanding cases are prioritised and resolved first, with the intention of preventing any individuals from reaching the two-year threshold as a result of administrative delays.

She said scheme data indicates that the number of individuals potentially impacted or approaching this threshold is currently fewer than 10, but said “we are treating every case with urgency”.

“Where a delay directly causes a tax charge to arise, the scheme will ensure compensation is processed swiftly,” Jameson said.

“While I hope this letter gives you and the committee reassurance that beneficiaries already have a route to recover all losses incurred as a result of scheme delays, we continue to explore all options to expedite and streamline this compensation so that future families are fully supported throughout the process,” the minister added.