Capita has warned that its underlying operating profits could be reduced by between £25 million and £40 million in 2026 due to failures in administering the UK's Civil Service pension scheme. The outsourcing giant is taking steps to mitigate the impact, but the contract issues have led to a backlog of thousands of cases and government sanctions.
Contract Failures and Backlog
Capita faced a grilling from MPs on the Public Accounts Committee on Wednesday, where CEO Adolfo Hernandez reiterated apologies for delays affecting the 1.7 million-member pension scheme. The Cabinet Office reported that over 6,700 quotations for past retirement dates and 4,100 bereavement cases remain outstanding. Capita missed a June 30 deadline to deliver terms of the £239 million contract, after earlier targets were also missed.
The government has withheld nearly £10 million in payments due to poor performance, and there are mounting calls for Capita to be stripped of the contract. Paymaster General Nick Thomas-Symonds told the committee that the Cabinet Office is sanctioning Capita every month while it fails to meet contract terms, and vowed to recover every single penny from the firm. The government has deployed a 140-strong team of civil servants to help clear the backlog.
Financial Impact and CEO Response
In addition to the profit hit, Capita expects free cash flow to be impacted by £35 million to £50 million from the pension contract issues and necessary investments to resolve them. CEO Adolfo Hernandez stated: "We recognise the service on Civil Service Pension Scheme has not been good enough, we are working closely with the Cabinet Office on all aspects of the scheme, and this remains our number one priority. The wider group continues to perform robustly, and we are confident in the actions we are taking to build a simpler, more focused Capita."
Government Oversight
The contract, signed by the previous Conservative government in 2023, has been under intense scrutiny. Nick Thomas-Symonds emphasized that the government is committed to holding Capita accountable, including recovering financial penalties. The committee questioned whether Capita views the government as a "cash cow to be milked to the point of dropping from exhaustion."
