Capita has warned that problems with its Civil Service Pension Scheme contract could reduce annual profit by up to £40m as the UK government considers recovering costs incurred while addressing issues with the programme.
The latest profit warning comes just days after the outsourcing group’s shares fell sharply when the government withheld £9.9m in contract payments, citing missed delivery deadlines and delays in implementing planned AI-powered technology improvements.
Capita’s shares dropped more than 15% in early trading following the announcement, reflecting growing investor concerns over the financial impact of the contract difficulties.
Chief Executive Adolfo Hernandez acknowledged that service levels on the Civil Service Pension Scheme had not met expectations and said the company was working closely with the Cabinet Office to improve performance across all aspects of the contract.
The latest setback adds further pressure on the London-based outsourcing specialist, which provides support services to both public and private sector organisations, following criticism from UK Paymaster General Nick Thomas-Symonds over its handling of the pension contract.
Capita said it expects to incur additional costs related to the scheme, including the recruitment of temporary staff and wider remediation work needed to improve service delivery.
The company has also postponed its target of achieving positive free cash flow by one year to 2027, with the pension contract issues expected to reduce free cash flow by between £35m and £50m during the current financial year.
Despite the challenges surrounding the Civil Service Pension Scheme, Capita said its wider business continued to perform strongly, securing contracts with a total value of £998m during the first half of 2026, representing a 15% year-on-year increase and marking its strongest first-half sales performance in its public services division since 2021.
