Pension chaos at Capita shows why we must keep detailed records of our entitlements: RUTH
Keen sailor Adolfo Hernandez has steered Capita into an almighty storm with its disastrous handling of the Civil Service Pension Scheme.
Strain was etched on his face, and those of his lieutenants Chris Clements and Richard Holroyd, when the trio appeared in front of MPs on the Public Accounts Committee this week.
The debacle will result in a hit of between £25million and £40million to profits at the outsourcing firm, whose previous failings led critics to insert the letter ‘r’ into its name.
Revenues from the contract come in at about £23.5million a year, so in the context of Capita’s overall number of around £2billion, it does not look huge.
The issue is not revenue but reputation. The human cost of the chaos at the scheme, which covers 1.7m people, is heartbreaking.
Thousands have suffered delays in receiving their pensions and faced hardship as a result.
Pensions chaos: Capita shares tumbled after it flagged a profit hit of up to £40m this year following failures in administering its civil service pension scheme contract
Grieving families are being put through the wringer at the worst time of their lives due to a backlog on bereavements.
Hernandez said the pile of cases was far bigger than he expected when Capita took over last year from MyCPS, part of financial administration group Equiniti.
There seems little hope of rapid relief. Capita found no fewer than 20m records were inaccurate, incomplete or missing.
For this reason, of the 4,500-strong pile of bereavement cases, only 1,465 are ‘workable’, to use Capita’s terminology.
The majority lack data or documentation and will be difficult to resolve. This high volume of defective records meant the technology system Capita had built to deal with the scheme could not cope.
It promised the Government a flagship project that would be the largest AI-
enabled pension scheme in the country. What it delivered was a total mess.
This is extremely worrying, most of all for members of the pension scheme itself but also for Capita’s 29,500 employees. Investors have seen shares in the former FTSE 100 firm fall from £12 in 2015 to 221p this week.
It is grist to the mill for Left-wing opponents of outsourcing of public services. The idea of ‘in-sourcing’ the pension contract, or putting it under Government control, is easier said than done.
Giving it to another private sector outsourcer would be hard too. There are only a small number that could conceivably take it on, assuming any were daft enough to contemplate such a thing. Capita, then, might end up keeping the contract, even if it would gladly slough it off.
Many questions are unanswered. Why were the records in such a mess when they were handed over? Why did this come as a surprise to Capita? What has Equiniti/MyCPS got to say for itself?
And if the scheme is in such a state, are there others in equal or worse disarray?
I’d advise keeping meticulous records of your pension entitlements, if you don’t already.
Passive aggression
Terry Smith’s latest letter to investors is a lament against the craze for AI and passive funds.
These trends have hit his performance and that of other high-profile managers who look to fundamentals such as profit and return on capital, including the likes of Nick Train and Alexander Darwall.
When the AI bubble bursts, the passive funds, pegged to indices dominated by Big Tech, will go down in sync and it will end in tears. It reminds me of the case of
‘Dr Doom’, or the late Tony Dye, a big City fund manager in the 1990s.
Dye correctly forecast the dotcom bust, but several years too soon. He was ousted, ironically, just before it finally happened.
The moral? In the words of John Maynard Keynes: ‘Worldly wisdom teaches us it is better to fail conventionally than it is to succeed unconventionally.’
Or, as Terry Smith puts it: ‘There will be little point being proved right about the dangers of passive or momentum investment after our fund has closed.’
Choose Charlie
Under new chief executive Charlie Green, office property company Workspace is putting up a spirited fight against the US raider Saba, denouncing its hostile takeover approach as high-risk, short-sighted and unsuitable.
Green has a credible plan. Shareholders, who have until the proxy voting deadline at 11am on July 21 to use their voice, should give Charlie a chance.
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