Capita shares tumble as UK withholds payments for missing contract deadlines

July 7 (Reuters) - Outsourcing firm Capita's shares fell more than 15% on Tuesday after the UK government withheld £9.9 million ($13.24 million) in payments for missing deadlines on a civil service pensions contract and accused the company of failing to deliver on AI-led technology improvements.

The government move deepens pressure on UK-based Capita, which has increasingly relied on its Public Service unit and AI investment to cut costs and win new contracts.

Calls have grown for Capita to be stripped of the contract after its system failures left 120,000 cases unresolved, UK Paymaster General Nick Thomas-Symonds said on Monday.

He said Capita missed its April and June deadlines to clear inherited pension arrears, with more than 6,700 outstanding pension quotations for past retirement dates and 4,100 unresolved bereavement cases still pending.

"We recognise the service has not been good enough, particularly for members waiting on bereavement, retirement and quotation cases," the UK-based company said on Tuesday.

Capita, which provides support services to UK public and private sectors, said it now has the processes, automation and technology to work through the backlog.

The government said on Monday it has begun appointing an independent auditor and remedial adviser to investigate the failures, while considering making the pension scheme a "prime candidate" for insourcing under its manifesto commitment.

Thomas-Symonds also accused the firm of failing to deliver on promises to create a flagship use case for the largest AI-enabled pension scheme in the country.

"It is clear that non-delivery of technology has been a fundamental part of Capita's inability to deliver," he said.

Capita's shares were last down 13.8% at 280 pence as of 0840 GMT, leading losses on the FTSE small-cap index.

($1 = £0.7475)

(Reporting by Raechel Thankam Job in Bengaluru; Editing by Subhranshu Sahu)