Capita says problems running the Civil Service Pension Scheme could cut its annual profits by £25m to £40m, after serious delays left some retired civil servants without pension payments or retirement quotes for months. The issue matters because it has disrupted incomes for thousands of pensioners, raised questions about Capita’s handling of a major public contract, and increased pressure on the government to recover costs.

The company said extra staffing and penalties for missed targets were driving the financial hit, and its shares fell nearly 21% after the update. Nearly £10m has already been withheld by the government, which says it wants to recover all public costs linked to the failure. By the end of last month, more than 6,700 retirement-date quotations and 4,100 bereavement cases were still outstanding, while officials said £15.6m in hardship loans had been issued to 2,700 affected members.