The outsourcing giant warns of up to £40 million loss as delays and service issues plague the Civil Service pension scheme
Category: Business
On a tense Wednesday morning, Capita’s chief executive Adolfo Hernandez faced a barrage of questions from MPs during a Commons committee hearing. The atmosphere was charged, as Hernandez delivered a stark warning: the company could see its profits slashed by up to £40 million due to extensive failures in managing the UK’s Civil Service pension scheme. This announcement came just a day after he publicly apologized for what he termed a “very poor service,” leaving thousands of civil servants waiting for payments and retirement quotes.
The crisis surrounding the pension scheme has been brewing for some time. Reports indicate that newly retired civil servants have struggled to pay bills and buy food due to delays that have left them without income for months. As of the end of June 2026, over 6,700 quotations for past retirement dates and 4,100 bereavement cases were still outstanding. Hernandez acknowledged the gravity of the situation, stating, “We recognize 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.”
Capita's stock took a nosedive following the announcement, with shares plummeting nearly 21%, marking their lowest point in almost a year. The company has warned that the financial repercussions of these failures will be severe, with underlying operating profits expected to decrease by between £25 million and £40 million in 2026. This grim outlook reflects the immediate costs of addressing the backlog and the penalties incurred for missed performance targets.
In a stock exchange update, Capita explained that the costs associated with hiring additional staff and the penalties for failing to meet contractual obligations would significantly impact their financial health. The government has withheld nearly £10 million from Capita as a result of these service shortfalls, and there are growing calls for the company to be stripped of its contract altogether. Nick Thomas-Symonds, the Paymaster General, expressed a firm stance, stating, “I will not have a situation where public money is funding corporate failing.”
As the situation deteriorated, the government stepped in to offer support to those most affected. Interest-free hardship loans totaling £15.6 million have been lent to 2,700 members awaiting payments. Angela MacDonald, the deputy chief executive of HMRC, who is leading a taskforce to clear the backlog, revealed that the cost of employing civil servants to assist in this effort will amount to £12.5 million. This intervention highlights the urgency of the situation, as many civil servants have been left in dire financial straits.
During the committee hearing, Catherine McKinnell, a Labour member, shared a poignant story about a terminally ill pensioner who had been waiting for a quote since January. Tragically, this individual passed away over the weekend without receiving the necessary information. Such stories underline the human cost of Capita's failures and the pressing need for resolution.
Capita's executives explained that the pension scheme, which serves approximately 1.7 million members, operates under extremely complex rules, complicating the processing of cases. Richard Holroyd, chief executive of Capita’s public service division, admitted that he had considered resigning in light of the situation but decided against it, citing a responsibility to support his colleagues through the crisis. He noted, "We can’t think about profitability … this is about restoring the service and rebuilding trust.”
The company’s commitment to resolving these issues comes at a cost. It is expected to incur additional expenditures related to temporary staffing, remediation work, and penalties, which could lead to a reduction in free cash flow by £35 million to £50 million. This financial strain has prompted Capita to push back its target for achieving positive free cash flow until 2027, a setback for a company already facing scrutiny over its operational efficiency.
Amidst this turmoil, Capita has reported some positive developments in other areas of its business. The company announced a 1.6% increase in adjusted revenue for the first half of 2026 and secured contracts worth £998 million, marking its strongest first-half performance in public services since 2021. These figures suggest that, outside of the pension scheme issues, Capita is maintaining a degree of operational resilience.
Nevertheless, the pension contract problems are overshadowing these successes, raising concerns among investors about management’s ability to control costs effectively. The company’s share price has fluctuated significantly, with a 12-month range between 223.00 pence and 416.00 pence, illustrating the market's reaction to the pension scheme crisis.
As Capita navigates this challenging period, the focus remains on restoring service levels and regaining trust from both the government and the civil servants affected. Hernandez reiterated the company's commitment to resolving these issues, emphasizing that the restoration of trust is the ultimate goal. With the stakes so high, the coming months will be telling for Capita as it works to turn around its fortunes and address the widespread dissatisfaction with its service.
In light of the challenges ahead, the situation remains fluid, and stakeholders will follow closely closely to see how Capita responds to this crisis and whether it can stabilize its operations and protect its financial future.