Outsourcing giant Capita has warned of a potential £40 million hit to its earnings this year, stemming from widespread contract failures on the UK’s Civil Service pension scheme.
The company anticipates underlying operating profits will be knocked by between £25 million and £40 million in 2026.
The news sent Capita's shares plummeting by 18 per cent on Wednesday, reaching their lowest point in nearly a year, compounding earlier losses as the full extent of the issues became clear.
Chief executive Adolfo Hernandez faced a grilling from MPs in a Commons committee hearing, reiterating apologies for delays in administering the 1.7 million-member pension scheme, leaving thousands of civil servants awaiting payments and retirement quotes.
The Public Accounts Committee questioned whether the firm views the Government as a "cash cow to be milked to the point of dropping from exhaustion."
The Cabinet Office confirmed over 6,700 quotations for past retirement dates and 4,100 bereavement cases remain outstanding.
Capita failed to meet a deadline of June 30 to deliver the terms of the £239 million pensions contract after missing earlier targets.
The Government has withheld nearly £10 million in payments to Capita for its poor performance over the Civil Service scheme and the firm is facing mounting calls to be stripped of the contract.
Mr Hernandez said: “We recognise the service on 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.
“The wider group continues to perform robustly, and we are confident in the actions we are taking to build a simpler, more focused Capita.”
The firm said its free cash flow will also be impacted by £35 million to £50 million from the pensions contract issues and investment needed to resolve the problems.
The Paymaster General and Cabinet Office minister Nick Thomas-Symonds has vowed to recover “every single penny” from Capita after the Government had to bring in a 140-strong team of civil servants to help clear the backlog of work.
He told the committee on Wednesday the Cabinet Office was sanctioning Capita “every single month” while it is failing the terms of the contract, which was signed by the previous Conservative government in 2023.
In its trading update, Capita said as well as financial sanctions being imposed by the Government for the failing contract, it is also facing higher costs as it steps up efforts to work through outstanding cases.
“As we continue to focus our efforts on the Civil Service Pension Scheme contract, we are seeing some impact to services delivered in our pension business, including the higher margin pension consulting business, and cost efficiencies have not been delivered in line with the phasing previously assumed,” it added.
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