Capita shares fall 21% as pension failures cost up to £40m
Outsourcing giant Capita will lose up to £40m annually after systemic failures at a major UK government pension scheme triggered a shareholder sell-off and a political backlash over public contract management.
Capita has warned that resolving severe failures at a UK government pension scheme will wipe up to £40m from its annual profits, sending its shares down nearly 21%. The outsourcing giant attributed the financial hit to the cost of hiring extra staff and incurring penalties for missed targets. The British government has already withheld nearly £10m in payments over the service shortfalls.
The contract, a significant part of Capita's public sector portfolio, is now operating at a loss. Richard Holroyd, chief executive of Capita's public service division, told MPs he had considered resigning over the scandal but decided to stay to support his colleagues. "We can’t think about profitability … this is about restoring the service and rebuilding trust," he said.
The operational breakdown has left thousands of retired civil servants without income for months, forcing many to struggle to pay bills and buy food. At the end of last month, the scheme, which covers 1.7 million members, had 6,700 outstanding quotations for past retirement dates and 4,100 pending bereavement cases. Catherine McKinnell, a committee member, told MPs of a terminally ill pensioner who waited for a quote since January and died over the weekend without receiving it.
The state has been forced to intervene directly to limit the fallout. The government offered interest-free hardship loans, disbursing £15.6m to 2,700 members awaiting payments. HMRC deputy chief executive Angela MacDonald, who is leading a taskforce of civil servants to clear the backlog, said the intervention would cost £12.5m.
The political pressure is now focused on ensuring Capita pays the full price for the crisis. Paymaster general Nick Thomas-Symonds said the government intended to "recover every single penny of cost" from the company. "I will not have a situation where public money is funding corporate failing," he told MPs.
For investors in European outsourcing firms, the crisis underscores the severe reputational and financial risks tied to complex public sector contracts. Capita executives blamed missing data and highly complex rules for slowing down case processing. Chief executive Adolfo Hernandez, who apologised to MPs for providing a "very poor service", said fixing the scheme remained the company's top priority.
