UK to end £239m Capita pension deal over service failure

The UK Cabinet Office has admitted that the outsourcing of the civil service pension scheme has failed, confirming it is actively shaping a strategy to take the contract back in-house. The decision follows months of what the government describes as "unacceptable" service levels by Capita, which took over administration in December.

The administrative collapse has caused immediate financial hardship. Retired civil servants have waited up to a year for payments, while around 17,000 bereaved relatives are also struggling. Capita inherited a backlog of 90,000 cases from the previous administrator, Equiniti, but has repeatedly missed targets to clear it.

The failure has pushed vulnerable claimants into crisis. A 98-year-old widow waited months for her payments, nearly requiring financial bailouts from her sons. Sarah Colhill, a young widow caring for a disabled daughter, was forced to claim universal credit because Capita delayed her £86,000 death-in-service lump sum for nine months. "As a direct result of these delays, I have been left in significant financial hardship and can no longer afford my rent," Colhill said.

The move carries significant implications for Europe's public sector outsourcing market, which relies heavily on government contracts. The contractor secured the £239m deal despite a track record that included being stripped of the Teachers’ Pensions and Royal Mail statutory pension schemes for similar delays. The government's reversal signals a potential tightening of the market, as public administrations grow less willing to absorb the operational risks of privatizing critical services.

Cabinet Office minister Nick Thomas-Symonds told parliament the scheme was a "prime candidate for insourcing in the future." A government spokesperson said Capita had missed a critical end-of-June deadline, adding: "We have set out our intention to advance the biggest wave of insourcing in a generation." The government is currently withholding payments to hold the contractor accountable.

Capita acknowledged the service was "not good enough" and apologised for the distress caused, claiming it now has the technology and processes to resolve the backlog. Fran Heathcote, general secretary of the Public and Commercial Services Union, said Capita has "missed deadline after deadline," leaving members to pay the price for systemic failures.