Its share price went down a quarter on Thursday when it became clear how bad the news from the Civil Service Pension Scheme really was. Despite reports of increased profits in other parts of pension administration, I wonder how easy it will be for Capita to compete against administrators who have embraced new technology.

Here is a report from The Times, written by John Rees and Helen Cahill – it can be accessed here.

Capita, the troubled outsourcing company, has warned of a £25 million to £40 million hit to adjusted operating profit from failures at its key civil service pensions scheme.

The business also expects its problems with the scheme to have a total cashflow impact in 2026 of £35 million to £50 million although has guided towards a positive free cashflow for the 2027 financial year.

Capita shares fell by 20.65 per cent on Thursday, closing down 57½p to 221p.

Capita’s administration of the scheme, which has 1.7 million members, has been dogged by problems, with the backlog of cases growing to 120,000 from 85,000 within weeks of Capita taking over the scheme in a £239 million seven-year deal last December.

The company said that additional costs to ensure the scheme was functioning correctly would come from “surge resource costs and remediation costs” on the contract, while cost efficiencies had not been delivered in line with previous assumptions.

“Compared to our previous expectations we now expect a £25 million to £40 million adjusted operating profit impact in 2026,” it said.

Before the latest announcement, City analysts had expected Capita to report adjusted operating profit of £106 million for the 12 months to the end of December, down from £114 million the year before.

Adolfo Hernandez, Capita chief executive, 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. The wider group continues to perform robustly and we are confident in the actions we are taking to build a simpler, more focused Capita.”

Capita said it had secured contracts worth £1 billion in the first half of 2026, as its public services division delivered its strongest performance since 2021. The group recently announced the sale of its contact centre business for a nominal sum and said its revenue growth, adjusted to reflect the disposal, was 1.6 per cent higher for the six months ended June 30. Capita’s public service and pension solutions units delivered growth of 2.4 per cent and 24.7 per cent respectively.

The outsourcer said it had delivered annual cost savings of £8 million and is spending £20 million on an overhaul that is designed to achieve an annualised cost reduction of £40 million.

This week the company’s executives were summoned before MPs to explain the problems and Richard Holroyd, chief executive of Capita’s public service division, told a Commons select committee that the company would make a loss on the contract as it invests to restore service levels.

Holroyd said: “I think the permanent secretary of the Cabinet Office said this: the government is a major strategic client for us. So we can’t think about profitability here, what we are thinking about is reputation across the rest of the business, and how we recover here.”

The government has said it would prefer to take the scheme back in-house but would not do so since such a move would be too disruptive.

Capita is seeking to repair its reputation with ministers because it has 85 contracts across the government and the public sector. In its first half, the company secured the Synergy Business Process Services contract, which will see the group take on back office services across four departments across Whitehall.

However, Andrew Forzani, government chief commercial officer in the Cabinet Office, told MPs that ministers were concerned about Capita’s performance on both its Army recruitment contract and its work administering the teachers’ pension scheme.

Forzani said: “Those are two contracts that we are very focused on in the Cabinet Office as we manage the total relationship [with Capita]. We are very sensitive to Capita’s role in delivering a significant amount of public services across those two contracts.”

Warning signs of crisis

Capita is no stranger to controversy having presided over many major corporate mishaps, from a cyber hack that saw the outsourcer fined £14 million, to its mismanagement of the British Army recruitment that saw the company criticised by the National Audit Office.

Adolfo Hernandez, the chief executive of Capita, has found himself in a difficult situation with the civil service pension scheme, with the group drawing the ire of its “number one customer” central government.

Capita inherited the scheme at a difficult time but Hernandez assured Nick Thomas-Symonds, the paymaster general, that the London-listed group would turn the scheme around, and create a “flagship use case” for the deployment of artificial intelligence in the public sector.

The warning signs of the looming crisis were already appearing during the two-year transition phase of the scheme into Capita’s management, as the group missed milestones for delivery of the promised technology.

Cat Little, permanent secretary to the Cabinet Office, told MPs this week that the government had no better alternative than Capita. She said the scheme was almost destined to fall into a significant backlog as she was “pretty confident” both suppliers “would have ended in some sort of complex failure”.

The government is sticking with Capita because ministers hope for some improvement and know that a changeover would create even more disruption for scheme members.

Capita has pledged to restore the system to normal levels by the start of September, hoping that it can also rebuild its reputation with the government. Little told MPs that “my direct conversations with the chairman and with the chief executive have been entirely focused around the fact that we are their number one customer and we expect to be treated as such”.

MPs made their dissatisfaction clear in their session with Little and Thomas-Symonds as they recounted stories of constituents impacted by the difficulties in the scheme. Simon Hoare, Conservative MP for North Dorset, said: “Behind each of these very large numbers, as we all know, lies an individual who has worked hard, or who is going through the upset of bereavement, who has been through the most terrible time trying to get hold of something that is legitimately theirs.”