My firm deducts my pension contribution then sits on it for three weeks

I work for a global company which has a group pension scheme organised via a major pension firm.

We are paid at the end of each month. The company contributes to our pension and will match our own contributions from our basic pay up to a level of 8 per cent.

The combined pension contribution (employee plus employer) invariably does not get credited to our pension accounts until on or shortly after the 20th of each month.

I have raised issue with this significant delay, which could affect pension buying potential and therefore performance, with my employer.

On one occasion they even missed this date and made a double contribution in the following month.

I feel that my employer is duty bound to ensure that whatever money employees are committing is sent to the pension accounts as soon as possible – as would be the case if via a standing order or direct debit.

I am comfortable with the company withholding their employer contribution to whatever date they are allowed to get away with, simply as this is a ‘bonus’ from them to the workforce.

I am fully aware that the company has the opportunity to make significant savings and gains whilst not contributing the employees’ contributions in a timely manner, from short-term financial markets.

I would like guidance on whether you feel I have the right to challenge the delay in forwarding the employees’ contribution due to the detriment this may have to pension performance.

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Steve Webb replies: I can understand your frustration about the delay between your contributions being deducted from your pay and them reaching your pension to be invested.

However, for reasons I will explain, I’m afraid that this delay arises from the Government’s desire to make automatic enrolment as easy as possible for employers to administer.

Of course, none of this excuses a firm for simply missing its deadlines as has apparently happened to you on occasion.

As you may know, under the rules of automatic enrolment, employers have a whole series of duties.

They have to choose a workplace pension scheme which meets certain minimum standards, they have to contribute at least 3 per cent of your ‘qualifying earnings’ (and your employer is being more generous than this) and they have a series of administrative tasks.

These include things like enrolling new workers, writing to workers who aren’t automatically enrolled (such as those under age 22) to tell them they can opt in, administering opt-outs, ‘re-enrolling’ opted out workers after three years and so on.

In other words, from the point of view of many employers, automatic enrolment is a real nuisance and costs them time and money to administer, quite apart from the contributions they have to make.

To try to reduce the burden on firms, there are a number of rules which mean that employees will end up with slightly less pension than they might have done, but which make life easier for firms without undermining the whole project.

One of these concessions relates to the deadlines by which employers have to pass on your contributions to the pension provider.

Once your pension arrangement is up and running, employers generally have up to the 22nd of the month following the month in which the deduction was made – so your firm is meeting its obligations by paying your contribution by the 20th.

In most cases employers would pay over their own contribution at the same time as this will be administratively easier.

You make a fair point that if you sent the money directly to the pension provider then each contribution could be invested for perhaps three to four weeks more.

Under current market conditions that delay is probably benefiting people, but in general you are right that by not having your money invested you will on average be losing out on a few weeks of investment return.

The only obvious way round this would be for your part of the overall contribution to be sent as soon as it is deducted, possibly followed at a later date by the employer contribution.

However, at current contribution rates, the amounts involved would often be very small and it would add considerably to the administrative cost if two separate payments had to be made each month, one from you and one from your employer.

In summary, the administrative arrangements I have described mean that you are indeed missing out on a few weeks of investment returns on each contribution that you make.

Over a pension career of decades I suspect the impact on your final pension will be modest, but I can see that this is more an issue of principle.

What is happening here is that the ‘ideal’ where your contributions are invested immediately is being traded off against the considerable burden on employers of running automatic enrolment, and on this occasion the delay in investing your money is a result of this trade-off.