Outsourcing firm Capita has revealed that the cost of addressing its service failures within the Civil Service Pension Scheme could diminish its annual profits by as much as £40 million. This announcement follows a public apology from Capita's chief executive, Adolfo Hernandez, to Members of Parliament for what he described as a "very poor service" during a recent Commons committee hearing.
The company's issues with the pension scheme, which it manages, have led to significant distress for thousands of newly retired civil servants. Reports from January highlighted individuals struggling to cover essential living costs, including bills and food, due to prolonged delays in receiving their pension payments and retirement information. These critical failures have prompted widespread concern and calls for Capita to potentially lose the lucrative government contract.
In an update to the stock exchange, Capita detailed that the financial implications stem from increased staffing needs and penalties incurred for not meeting agreed service benchmarks. The projected impact on annual profits is estimated to be between £25 million and £40 million. This warning had an immediate and sharp effect on the company's market valuation, with its shares plummeting by nearly 21% on the day of the announcement, reflecting investor apprehension regarding the financial fallout and potential long-term damage to its reputation.
The government has already taken action, withholding close to £10 million from Capita due to these service shortfalls. Furthermore, the Paymaster General, Nick Thomas-Symonds, has affirmed the government's intention to "recover every single penny of cost" from Capita, asserting that public funds will not be used to compensate for corporate failings. A taskforce led by HMRC's deputy chief executive, Angela MacDonald, has been established to clear the substantial backlog, with the cost of this intervention by civil servants estimated at £12.5 million.
The scale of the problem is significant, with over 6,700 quotations for past retirement dates and 4,100 bereavement cases still outstanding by the end of last month. To mitigate the severe impact on the worst-affected individuals, the government has offered interest-free "hardship loans," with £15.6 million already disbursed to 2,700 members awaiting payments. The emotional toll of these delays was underscored by a Labour MP on the accounts committee, Catherine McKinnell, who recounted the tragic case of a terminally-ill pensioner who died without receiving their long-awaited pension information.
Capita executives attributed some of the processing delays to the scheme's complex rules and missing data, while acknowledging the profound impact on members. Richard Holroyd, chief executive of Capita's public service division, indicated that the company is currently operating at a loss on this specific contract, prioritising service restoration and rebuilding trust over immediate profitability. The Civil Service Pension Scheme has 1.7 million members, underscoring the critical nature of the service provided.
Source: The Guardian, Capita Stock Exchange Update, House of Commons Public Accounts Committee Hearing