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Outsourcer Capita expects to see its profits impacted by up to £40m from the backlog in the administration of the Civil Service Pension Scheme, having not yet said when normal service levels will be restored. Earlier this month, the paymaster general called CSPS “a prime candidate” for insourcing.
In a trading and CSPS contract update on 9 July, Capita provided proforma financial data that shows a hit on its adjusted operating profit of £25m to £40m from the troubled CSPS contract, with a free cashflow impact of £35m to £50m as a result of this and the additional investment required. Capita expects to see positive free cashflow only in 2027.
Chief executive Adolfo Hernandez pointed out some significant contract wins for the outsourcer this year, including the Synergy Business Process Services contract for payroll, HR and finance services to four government departments, including the Department for Work and Pensions, starting in summer 2027.
Hernandez acknowledged the problems the firm has had in delivering pensions administration for CSPS: “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 contractor said it now has the processes, automation and technology in place to work through the backlog and is committed to doing so “as quickly as possible”.
Among others, payments to 3,127 people are still outstanding, 1,800 of whom have waited more than 30 days, Angela MacDonald, the senior civil servant who leads the surge team to support Capita in restoring normal service, told MPs this month. There are also nearly 17,000 bereavements in the queue, of which 7,603 are families where benefits are due. Of these grieving families, nearly 2,000 have been waiting for more than four months.
Capita has missed a 30 June deadline for restoring normal service levels and has not yet indicated a new timeline. MacDonald said that about 111,000 items are still outstanding, double what she would expect for a scheme of this size, but believes the pace has increased.
Capita said that “efforts to restore service levels on this contract mean that the Pension Solutions division will incur a number of additional costs in 2026, but we are committed to improving the service on the Civil Service Pension Scheme contract in the second half of 2026”.
This includes surge resource costs and remediation costs on the CSPS contract, Capita noted, and “the likely impact from costs against KPI performance”.
Government is exploring in-house administration
The Cabinet Office has so far withheld £9.9m in payments to the administrator for missing milestones in the delivery of the CSPS scheme, which is expected to help fund the surge team. Paymaster general Nick Thomas-Symonds said on 6 July that the government will recover “every single penny” of the costs for a surge team, as “public money will not fund Capita’s failings”.
The government is exploring insourcing the CSPS contract, which is a key demand of the Public and Commercial Services union which represents civil servants.
“This episode highlights the severe limitations of outsourcing the civil service pension scheme. I say openly to the House that if I could insource this operation today, I would do so,” Thomas-Symonds said, but noted that making such a change abruptly would cause further disruption.
Earlier this month he also told MPs: “I’m actively, with my team, exploring all commercial, legal and operational options, including testing... the long-term feasibility of a full in-house delivery model.”
The 10-year contract for CSPS was awarded under the previous government in 2023, but shadow minister Mike Wood blamed the current government for ignoring warnings before Capita took over the contract last December.
“Throughout 2025, both the National Audit Office and the Public Accounts Committee explicitly flagged that Capita was missing critical transition milestones and IT delivery targets, yet despite these clear red flags, the Cabinet Office chose to override the warnings, accepted flawed assurances and pressed ahead with the December go-live,” he said. “The contract management failure belongs entirely to those on the government front bench.”
Capita took over the administration of the CSPS from MyCSP last December. The two administrators have blamed each other for the huge backlog and service failures.
Capita’s significant issues are not confined to CSPS, however. Similar problems were highlighted in the past with Teachers’ Pension Scheme and the Royal Mail Statutory Pension Scheme. In April, ministers eventually cancelled Capita’s contract for the RMSPS after key milestones were missed.
The outsourcer had to report a data breach at CSPS in April. Six months earlier, it was fined £14m for failing to ensure the security of personal data after a hack that exposed data of about 6.6m people and affected 325 pension schemes.
