Capita warns of £40m profit hit from pension scheme failures

Created at 9 Jul · 5:15 PM1 source↑ Market-relevant

IN SHORT

Capita expects its civil service pension scheme failures to cost between £25m and £40m in annual profits due to extra staffing and penalties. The outsourcing firm's shares fell nearly 21% following the announcement, as the government seeks to recover all associated costs.

Key Numbers

£40mmaximum profit reduction from pension scheme issues

£25mminimum profit reduction from pension scheme issues

21%Capita share price drop

£10mamount withheld from Capita by government

6,700+outstanding retirement quotations

4,100+outstanding bereavement cases

£12.5mcost of civil servant taskforce support

£15.6mhardship loans issued to members

2,700members received hardship loans

1.7mmembers in the civil service pension scheme

Who's Involved

Capita

outsourcing company facing profit hit and scrutiny

Adolfo Hernandez

Chief Executive of Capita, apologized for service failures

Angela MacDonald

HMRC deputy chief executive leading backlog clearing taskforce

Nick Thomas-Symonds

Paymaster General, stated government intent to recover costs

Catherine McKinnell

Labour member of the accounts committee, highlighted a case of a deceased pensioner

Richard Holroyd

Chief Executive of Capita's public service division

↳ Why This Matters

The failures highlight significant operational issues within a major government outsourcing contract, impacting the financial well-being of thousands of pensioners and raising questions about corporate accountability and the effectiveness of public-private partnerships.

Key facts

Capita anticipates a profit reduction of £25m to £40m due to issues with the civil service pension scheme.
The company's chief executive, Adolfo Hernandez, apologized for the service failures.
The government has withheld £10m from Capita and seeks to recover all associated costs.
Over 6,700 retirement quotations and 4,100 bereavement cases were outstanding at the end of last month.
The government has provided £15.6m in hardship loans to 2,700 members awaiting payments.

Capita has warned that the cost of rectifying failures at the civil service pension scheme could reduce its annual profits by up to £40 million. The outsourcing firm's shares fell by nearly 21% following the announcement. Chief executive Adolfo Hernandez apologized for the "very poor service" that has led to thousands of civil servants experiencing delays in receiving payments and retirement quotes.

The company cited extra staff costs and penalties for missed targets as reasons for the financial impact, which it estimates will be between £25 million and £40 million. The government has already withheld nearly £10 million from Capita due to service shortfalls, and there are increasing calls for the company to lose its contract.

Angela MacDonald, HMRC deputy chief executive, informed a Commons committee that a taskforce of civil servants brought in to help clear the backlog would cost £12.5 million. Nick Thomas-Symonds, the paymaster general, stated the government's intention to recover all costs from Capita, emphasizing that public money should not fund corporate failures.

To support those most affected, the government has offered interest-free hardship loans, with £15.6 million lent to 2,700 members awaiting payments. The committee also heard a distressing account of a terminally ill pensioner who died before receiving a requested quote.

Capita executives attributed some of the delays to the scheme's complex rules and missing data. Richard Holroyd, chief executive of Capita's public service division, acknowledged that the company was making a loss on the contract due to the additional expenditure but stressed the priority was restoring service and rebuilding trust.

Frequently asked questions

Capita expects the cleanup costs to wipe between £25 million and £40 million off its annual profits.

The company has been criticized for significant delays in processing payments and retirement quotes, leaving some retired civil servants without income.

The government has withheld nearly £10 million from Capita, deployed a taskforce to clear the backlog, and offered hardship loans to affected members.

Capita's chief executive has apologized for the poor service and stated that restoring service and rebuilding trust is the company's top priority.

What Happens Next

01Capita will continue working with the Cabinet Office to improve service levels.

02The government intends to recover all costs associated with the pension scheme failures from Capita.

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Cadence

How It Developed

Capita's chief executive apologised to MPs for poor service at the civil service pension scheme.

Thousands of civil servants faced payment and retirement quote delays.

Capita announced the cleanup costs could reduce annual profits by £25m to £40m.

Capita's shares dropped nearly 21% after the profit warning.

The government has withheld nearly £10m from Capita due to service shortfalls.

A taskforce led by HMRC's deputy chief executive is working to clear the backlog.

The government aims to recover all costs incurred from Capita.

Interest-free hardship loans have been provided to affected members.

Sources

Capita expects to lose up to £40m over pension scheme fiascoThe Guardian