The government’s decision to terminate Capita’s Royal Mail pension contract exposed its error of judgement in relation to the botched civil service pension contract.
The Cabinet Office said it terminated Capita’s contract to administer the Royal Mail pension because of the outsourcing giant’s “failure to meet key delivery milestones”.
But this raises questions over Capita not meeting the same fate in relation to its botched takeover of the Civil Service Pension Scheme (CSPS).
In relation to the Royal Mail pension contract termination, Cabinet Office minister Nick Thomas-Symonds went further.
“Capita had an 18-month planning window to prepare for the transition,” he said. “They failed to deliver numerous milestones, including a failure to implement the required IT automation.
“The Cabinet Office repeatedly flagged delays in transition milestones,” said Thomas-Symonds.
The government had opportunities to be as decisive in relation to Capita’s takeover of the CSPS, but was not.
Seen it before
Back in October 2025, when the Public Accounts Committee (PAC) warned the government about the very same “missed milestone” issues in relation to Capita’s CSPS administration, it took a different approach.
The report cited the missed IT milestones as concerns, among other things.
At the time of the report, MPs said Capita had only delivered one out of eight transition milestones on time, and that the Cabinet Office had withheld £9.6m in payments.
“The Cabinet Office acknowledged that delays to key deliverables were a significant concern, though noted that each milestone has a range of work packages that sit underneath it, and therefore focusing on the completion of the whole milestone probably belies how much work has actually happened,” said the PAC.
“It told us that it believed Capita had underestimated the complexity of the transition and the length of time it would take to implement the technology, and that it was working with Capita to produce a new delivery plan with realistic dates.”
A couple of months later, on 1 December, Capita took over the pension scheme from MyCSP in line with the £239m contract awarded in 2023.
But by January this year, an HMRC troubleshooter had to step in to lead an “urgent recovery plan”, amid difficulties following the transfer.
The problems continued, with huge delays in providing pensions, leaving many scheme members in financial distress, including people with no other source of income receiving no pension.
Carry on regardless
The PCS union last week called for Capita to have its CSPS administration contract cancelled in the same way as it has at the Royal Mail pension scheme.
Capita has retained the contract, unlike the Royal Mail pension deal.
Royal Mail statutory scheme contract has annual revenues of less than £10m, according to Capita. The company, which has administered the scheme since 2018, said it “will continue to work closely with all parties to ensure continuity and a smooth handover in line with the Cabinet Office’s future alternative arrangements”.
According to figures from Tussell, Capita currently has about 230 live contracts with the public sector, worth £7.7bn. Its latest win is the decade-long Synergy Business Process Services contract, which, according to the official tender, has an estimated value of around £959m over the period. The contract supports back-office services for the Department for Work and Pensions, Ministry of Justice, Home Office, and the Department for Environment, Food and Rural Affairs.
One IT outsourcing expert told Computer Weekly last month that questions have to be asked as to how Capita’s reported failures have affected decisions around government contracts.
“The government has demonstrated a failure in procurement in terms of managing them,” they said. “Time and again, it has demonstrated its ineptitude.”
The removal of Capita from the Royal Mail pension contract could be a defining moment in UK public sector outsourcing. The problems experienced by Capita could make the conversation about delivering in-house easier for department bosses.
Insourcing strategy
Furthermore, last month, Cabinet Office parliamentary secretary Chris Ward said “the age of outsourcing will end”, and announced plans to insource services.
“For decades, successive governments have been, at best, ambivalent about whether public services are delivered in-house,” he said. “At worst, we’ve had outsourcing by default, with public services hollowed out and sold off to the lowest bidder. That era ends today.”
The government introduced a Public Interest Test, requiring all departments to assess whether a service can be delivered more effectively in-house before any outsourcing decision is made. This will apply to service contracts of £1m and above, covering over 95% of central government spend.
“All departments must also publish insourcing strategies to make the biggest wave of insourcing in a generation a reality,” said Ward.
A recently retired civil servant affected by the CSPS’s problems said “the devil will be in the detail” when it comes to the proposed Public Interest Test. “Will this prioritise quality of service, or cost? Outsourcing is at least in part a response to the budgetary pressure that departments have faced, so it would be interesting to know the Treasury,” they said.
Beyond insourcing, there is another set of suppliers waiting in the wings with their eyes on the public sector.
Indian heritage companies like Tata Consultancy Services (TCS) have been making headway in a sector where they have been virtually non-existent in for decades.
TCS is growing its public sector base and is openly discussing its strategy to target business there. Speaking to Computer Weekly in 2024 Amit Kapur, TCS’s UK country head, said there was “potential, paucity and action” with “good engagement”.
In the public sector, TCS has deals with the BBC, the NHS and Transport for London, and works with the Department for Work and Pensions.
It also has form in public sector pension administration, and actually replaced Capita in 2023 on the Department for Education’s scheme, which manages over two million teachers’ pensions with a 10-year contract
Infosys, another Indian heritage firm, was recently selected to deliver an HR system to the NHS in a 15-year, £1.2bn deal. This increased the supplier’s UK public sector business more than 160 times over.
Before signing the deal, Infosys had just £7.45m in active UK public sector contracts, according to figures from Tussell.