Capita, the UK-based outsourcing firm, is facing significant financial and reputational challenges following its troubled management of the Civil Service Pension Scheme. Having assumed the contract from MyCSP last December, Capita has encountered widespread administrative failures affecting approximately 1.7 million scheme members, including retired civil servants and bereaved families.
The company warned this week that issues with the pension scheme will reduce its adjusted operating profit by between £25 million and £40 million this year. This comes alongside earlier reports that the government withheld £9.9 million in payments to Capita, citing persistent service failures and delays. The backlog of unresolved pension cases surged from 85,000 to 120,000 shortly after Capita took over the contract, causing pensioners and families to face months-long delays in receiving benefits.
Capita’s chief executive, Adolfo Hernandez, acknowledged the scale of the problem before the Public Accounts Committee, describing the volume of incomplete and inaccurate records as far larger than anticipated. The company found that out of 4,500 bereavement cases, only about 1,465 had sufficient data for processing, with the rest hindered by missing documentation. This extensive data deficit has also undermined the effectiveness of the AI-enabled system Capita promised to implement as part of its management overhaul, leading to widespread operational difficulties.
Shares in Capita fell sharply on news of the profit impact, dropping more than 20 percent and reaching 221 pence, marking a significant decline from values in previous years. The company's reputation, already dented by previous controversies including cybersecurity breaches and military recruitment contract failures, has come under renewed scrutiny. Critics and MPs voiced concern about the impact on individuals affected by delays, emphasizing the personal hardships endured by pension recipients and bereaved families.
The government has indicated a preference for returning the pension scheme contract in-house but has ruled this out due to potential disruption for scheme members. Instead, officials underscored the complexity of transferring the contract to another private provider, with few companies reportedly willing or capable of managing the scheme under current conditions. Cabinet Office permanent secretary Cat Little expressed confidence that both prior administrators would have faced similar difficulties, suggesting the problems are deeply rooted.
Despite the challenges, Capita maintains that it is investing heavily in remediation efforts, spending around £20 million on system improvements and aiming to restore service levels by September. Chief Executive Hernandez emphasized the company’s ongoing commitment to the contract and its intention to build a "flagship use case" for AI applications in public sector pension management.
The government continues to monitor Capita’s performance closely, with officials raising concerns about the firm’s handling of other public contracts, including Army recruitment and the teachers’ pension scheme. Andrew Forzani, the Cabinet Office’s chief commercial officer, acknowledged that these contracts remain key focal points as ministers seek consistent and reliable service delivery from the outsourcer.
As Capita navigates this crisis, observers note the broader implications for public service outsourcing and underline the importance of accurate record-keeping for pension rights. With 85 active public sector contracts, Capita’s ability to restore confidence will be critical for its future relationship with government clients and affected individuals.