The UK government has withheld £10 million in payments to tech and business process outsourcing biz Capita following the disastrous takeover of the Civil Service pensions scheme (CSPS).

The penalties (£9.9 million) in the £239 million contract relate to the transition from the earlier scheme provider to the Capita service. Since the service went live in December last year, Capita has continued to miss the majority of its KPIs and is locked in a dispute with the government over further penalties, MPs heard yesterday. The outsourcing giant apologized for its performance to MPs in the meeting, which can be viewed here.

Capita had promised to use AI to help automate the administration of the 1.7-million member pensions scheme. But after The Register revealed its troubled launch in December last year, the performance has continued to hit the lives of civil servants waiting for their pensions, some of whom have been “left struggling to make ends meet at a pivotable point in their life, causing them significant distress and anxiety,” according to the chair of the Public Accounts Committee (PAC), Sir Geoffrey Clifton-Brown.

Speaking to a joint meeting of the PAC and the Public Administration and Constitutional Affairs Committee, Andrew Forzani, government chief commercial officer, said £9.9 million would be withheld from Capita for failing the transition. Forzani said the government had hired an auditor to settle a claim for further penalties.

“In addition to that, we have been deducting monies every single month for failed service delivery. We haven't declared those numbers because we are in dispute with Capita about the numbers each month, because of some lack of agreement on some of the data, which is why we've brought in the independent auditor,” he told MPs.

Cat Little, civil services chief operating officer, told the joint committee that Capita was on track to fail 16 of its 21 headline KPIs this month. “They are not at the pace they need to move through the processing of the work, the backlog is just getting higher and higher, so my expectation is that this trend worsens and worsens, unless something radically shifts in their ability to tackle the most important, urgent, high-priority work.”

As it transitioned to take over the service last year, Capita gave no indication its contract win would lead to this kind of performance on what is developing into a national scandal.

Cabinet Office minister Nick Thomas-Symonds said he felt personally let down by the Capita chief executive over assurances given before it took over running the scheme. “I was being told by the chief executive, on 25th of November last year — before the go-live date on the first of December — that the UK government would be presiding over the largest AI-enabled pension in the UK, and I would therefore have — and I quote — ‘a flagship use case’.”

Capita won the seven-year, £239 million contract to oversee the CSPS in November 2023, taking over from MyCSP, which ran the scheme on behalf of the Cabinet Office under a £238 million contract that was first agreed in 2012. MyCSP was a mutual joint partnership between employee partners, who owned 25 percent of the company, and a private sector partner, Equiniti.

Also addressing MPs, Adolfo Hernandez, Capita group chief executive officer apologized to all the pension scheme members “who have been receiving a very poor service at a very difficult and challenging time in their lives.”

He said Capita inherited a case backlog that was much higher than anyone expected, and also more complex. The provider was dealing with cases up to four years old, some of which related to government departments which no-longer existed.

“The service record is incomplete and the sheer scale of the data that was missing upon transfer is huge. We're talking about 20 million records,” he said.

In a trading update, Capita said the financial impact of its work on the CSPS would be between £25 million and £40 million in operating profit in 2026, and between £35 million and £50 million in free cash flow. ®