Capita has warned that the cost of fixing its troubled civil service pension scheme could wipe up to £40 million off annual profits, as the outsourcing firm faces mounting criticism over delays that have left thousands of retired civil servants without income for months.
Apology and profit warning
On Wednesday, Capita's chief executive, Adolfo Hernandez, apologised repeatedly to MPs at a Commons committee hearing for what he called a “very poor service.” The following day, the company issued a stock exchange update stating that restoring service levels would require extra staff costs and penalties for missed targets, reducing annual profits by between £25 million and £40 million. The warning sent Capita's shares down nearly 21%.
Hernandez said: “We recognise 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.”
Backlog and hardship
According to a report by The Guardian in January, newly retired civil servants were struggling to pay bills and buy food due to delays at the pension scheme, which is contracted out to Capita. At the end of last month, more than 6,700 quotations for past retirement dates and 4,100 bereavement cases were outstanding. The government has withheld nearly £10 million from Capita because of service shortfalls, and there are growing calls for the contract to be stripped.
Angela MacDonald, HMRC deputy chief executive leading a taskforce to clear the backlog, told the Commons public accounts committee that the bill for work done by civil servants drafted in to help would be £12.5 million. Nick Thomas-Symonds, the paymaster general, told MPs the government intended to “recover every single penny of cost” from Capita. “I will not have a situation where public money is funding corporate failing,” he said.
Hardship loans and impact
To assist the worst-affected pensioners, the government began offering interest-free “hardship loans.” MacDonald told the hearing that £15.6 million had been lent to 2,700 members awaiting payments. Catherine McKinnell, a Labour member of the accounts committee, recounted the case of a terminally ill pensioner who had been waiting for a quote since January and died at the weekend still without receiving the information.
Capita executives told the committee that the scheme, which has 1.7 million members, has extremely complex rules and that missing data was slowing down case processing. Richard Holroyd, chief executive of Capita's public service division, said he had considered resigning but decided against it because it would have left colleagues without needed support. He acknowledged that the extra spending meant the company was making a loss on the contract, but added: “We can’t think about profitability … this is about restoring the service and rebuilding trust.”
