Government withholds £10m from Capita over pension delays
Capita has run the Civil Service Pension Scheme (CSPS) since 2017, handling payments for thousands of current and former civil servants across the country.
The UK government has frozen almost £10 million of payments to outsourcing firm Capita after “unacceptable” delays in Civil Service pension payouts, and is now preparing the biggest wave of insourcing in a generation.
Capita has run the Civil Service Pension Scheme (CSPS) since 2017, handling payments for thousands of current and former civil servants across the country.
Recent audits revealed a growing backlog that left many pensioners without income for months, prompting senior ministers to intervene.
Plaid Cymru Senedd Member Lindsay Whittle wrote to the Cabinet Office warning that constituents in Blaenau Gwent, Caerphilly and Rhymni were facing severe financial hardship while waiting for their pensions.
“Some of my constituents have significant financial commitments that depend on a prompt payment of their pension.” But some have now waited months and are fearful that this ongoing delay will not be resolved in time.
The letter highlighted cases where retirees struggled to meet mortgage repayments and utility bills, underscoring the human cost of the administrative failure.
A Cabinet Office spokesperson confirmed that service levels following the move to Capita had been “completely unacceptable” and that the immediate priority was to stabilise the service for civil servants.
“While robust commercial levers will continue to be applied in the short term, including withholding nearly £10 million in payments, the government intends to move forward the biggest wave of insourcing in a generation and is actively shaping a long‑term strategy to bring this pension scheme back in‑house,” the spokesperson said.
The decision to withhold the funds is a commercial lever aimed at pressuring the supplier to accelerate remedial actions while the public sector prepares to take back control.
Capita, a London‑based strategic supplier to the government, issued a statement saying it has a long‑standing record of cooperating with parliamentary and regulatory investigations and will continue to engage fully and transparently with the NAO, Cabinet Office and relevant stakeholders.
The company claimed it has “made good operational progress” across “priority areas” since the review, and that it recognises the need for continued service improvement.
Further steps outlined by Capita include implementing additional automation and strengthening governance through improved management information, measures the firm says will enhance operational output and member experience.
Despite the progress, Capita admitted that performance remains below the standards that scheme members and the government rightly expect.
“The remediation of CSPS remains the group’s top priority,” the statement added, signalling that the firm is focused on clearing the backlog.
Government officials have not disclosed a precise timetable for the insourcing programme, but the Cabinet Office indicated that a detailed plan is being drafted to transition the scheme back to civil service control.
Industry observers note that the move could affect thousands of civil servants and may set a precedent for future outsourcing contracts across the public sector.
For now, pensioners continue to await their payments while both Capita and the government work to resolve the delays and restore confidence in the scheme.