Capita pension audit|Routine oversight or £239m contract failure?

Routine check or verdict on £239m?

The National Audit Office has opened a new audit of Capita's £239 million civil service pensions contract. Capita calls it established oversight, not a new regulatory process; the watchdog says key service levels keep being missed. The scheme has 1.7 million members. Capita took over its administration in December 2025. The watchdog's account of what followed is blunt.

Members who were due to retire were forced to amend their plans. The payments they were entitled to did not arrive on time. The Cabinet Office had to step in with transitional support loans. By August 2026, those loans had reached more than 3,900 members. The total paid out was £22.1 million. Yet Capita is not the only party under the lens.

The audit will examine how the Cabinet Office managed the handover from the previous administrator, MyCSP. It will also consider how the department oversaw the scheme, both before and after Capita took charge. Capita is the supplier under review. Its client is under review too. The National Audit Office put its summary in writing.

It said Capita “has struggled to administer the scheme effectively following the transfer”. It added that this came “despite a two-year transition period to prepare for taking over the scheme”. Capita's statement did not dispute the service record. “Capita accepts that performance remains below the standards that scheme members and the government rightly expect.”

It said it “will continue to engage fully and transparently with the NAO, Cabinet Office and relevant stakeholders”. So there is little dispute about the state of the service. The difference is in the framing. Capita described the review as part of established oversight arrangements for major government contracts. In plain terms, routine accountability for a big public contract.

But according to the NAO, Parliament has already repeatedly scrutinised both Capita and the Cabinet Office. And this audit builds on an investigation the watchdog carried out in June 2025.

Inherited, or made?

The cost of the failure did not stay inside Capita. Two months after the handover, in February 2026, the government introduced a recovery plan. It followed what the government called “unacceptable service levels”. The plan included an emergency interest-free loan scheme for members. The government also deployed 150 civil servants to prioritise urgent cases. Capita added 100 staff of its own.

The backlogs hit vulnerable groups in particular. That included families making bereavement claims and those owed death-in-service benefits. On average, the loans came to under £5,700 for each member who received one. Now set that against Capita's penalty. The government withheld nearly £10 million in payments to Capita over its performance. The loans paid to members came to more than twice that.

And there have been calls for Capita to be stripped of the contract altogether. On that record, this looks like Capita's failure alone. The history is less tidy. The NAO's June 2025 investigation was not about Capita. It examined the previous administrator, MyCSP Ltd. MyCSP had repeatedly missed service targets for retirement quotes, first pension payments and call handling.

When Capita took over in December 2025, it inherited a backlog of more than 86,000 cases. Part of the crisis was already in the system on day one. That is where the audit's scope comes in. It will assess the state of the scheme and the transition arrangements at go-live on 1 December. It will look at how Capita has performed, and at members' experience since then.

In the watchdog's words, it will also consider how the Cabinet Office “exercised its responsibilities for oversight”. For Capita's shareholders, this is the fork. If the auditors find the scheme was handed over in poor shape and loosely overseen, the blame is shared. If they find the handover was sound, more of it falls on Capita. But the backlog did not stay at the level Capita inherited.

By early February, Capita confirmed it had risen to more than 120,000 cases. That is about forty per cent higher than the 86,000 it took on. The trouble also started before go-live. According to City A.M., the watchdog's investigation had shown that Capita missed three transition milestones before taking over. As a result, the Cabinet Office withheld £9.6 million in transition payments.

That sum is about four per cent of the £239 million contract. It is small against the contract. But it matters where it falls. Those milestones slipped while Capita was still preparing, before any inherited backlog was its to run. The pattern continued once Capita was in charge. It failed to meet a 30 June deadline to deliver the terms of the contract, after missing earlier targets.

In July, chief executive Adolfo Hernandez admitted delays. They had left thousands of civil servants waiting for payments and retirement quotes. So the inherited backlog explains where Capita started. It does not explain the milestones missed before the handover. Nor does it explain the backlog growing afterwards. That is why the watchdog's point about a two-year transition period carries weight.

What the auditors will weigh

Capita says the trend has turned. It said it made good progress across priority areas of the scheme in August and September. That followed its first-half update on 4 August. The company said: “we are implementing further automation along with stronger governance including improved management information.” It said this “will continue to improve operational output and member experience.”

It called fixing the scheme the group's top priority. But the auditors will look further back than two months. The audit covers Capita's performance and members' experience since it started running the scheme in December 2025. Any recent progress will be measured against that whole record. That includes the key service levels the watchdog says were repeatedly missed. Go back to the opening gap.

Capita calls this established oversight. The watchdog describes a supplier that struggled despite two years to prepare. Both accept the service falls short. What separates them is where the failure comes from. Was it inherited and loosely overseen, or did it begin during Capita's own preparation? The thing to watch is the NAO's finding on key service levels after Capita's August and September changes.

The articles give no date for that report. Suppose the auditors find service levels recovering and the go-live problems shared with the Cabinet Office. Then Capita's case that the contract can be fixed gets stronger. Suppose instead they find levels still repeatedly missed, despite the new automation. Then those calling for Capita to lose the contract gain evidence.

And its standing as a strategic supplier comes under more pressure.

Informational only, not investment advice. Figures and quotes come from the linked reports.