Capita has warned that the cost of fixing its troubled civil service pension scheme could wipe up to £40m off its annual profits, a day after its chief executive apologised to MPs for what he described as a 'very poor service'.
CEO Apologises to MPs
On Wednesday, Capita's chief executive, Adolfo Hernandez, faced a grilling at a Commons committee hearing, repeatedly apologising for failures that have left thousands of civil servants waiting for payments and retirement quotes. The Guardian reported in January that newly retired civil servants were struggling to pay bills and buy food because delays at the pension scheme—contracted out to Capita—had left them without an income for months.
Financial Impact
In a stock exchange update, Capita said that getting service levels at the pension scheme up to scratch would come at a price. The company pointed to extra staff costs as well as penalties for missed targets. Taken together, this would wipe between £25m and £40m off annual profits, the outsourcing company said. The warning sent its shares down nearly 21%.
Hernandez said: 'We recognise the service on the 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.'
Government Response and Backlog
The government has withheld nearly £10m from Capita because of service shortfalls, and the company is facing mounting calls to be stripped of the contract. More than 6,700 quotations for past retirement dates and 4,100 bereavement cases were outstanding at the end of last month.
Angela MacDonald, the HMRC deputy chief executive leading a taskforce to clear the backlog, told the Commons public accounts committee that the bill for the work done by civil servants parachuted in to help would be £12.5m.
Nick Thomas-Symonds, the paymaster general, told MPs the government intended to 'recover every single penny of cost' from Capita. 'I will not have a situation where public money is funding corporate failing,' he said.
Hardship Loans and Personal Impact
When the extent of the problems at the scheme became clear, the government started offering interest-free 'hardship loans' to the worst-affected people. MacDonald told the hearing that £15.6m had been lent to 2,700 members awaiting payments.
Catherine McKinnell, a Labour member of the accounts committee, told the hearing of a terminally ill pensioner who had been waiting for a quote since January. She said they had died at the weekend still without receiving the information.
Complex Rules and Data Issues
A trio of Capita executives told the committee that the scheme, which has 1.7m members, had extremely complex rules and the processing of cases was being slowed down by missing data.
With government contracts key to the Capita business, Richard Holroyd, chief executive of its public service division, said he had considered resigning but decided against walking away because it would have left colleagues without the support they needed.
The extra money being thrown at the pension scheme debacle meant the company was making a loss on the contract, Holroyd said. But he added: 'We can't think about profitability … this is about restoring the service and rebuilding trust.'
