Construction firms face heavy financial losses as the result of a section in last month’s Pensions Act that commits them to retrospective payments, industry experts have warned.
Senior industry figures claim some firms could face bankruptcy as a result of the clause, which commits firms to making pensions payments on behalf of employees transferred to them under the Transfer of Undertakings Protection of Employment (TUPE) regulations.
This is set to have a huge impact on the construction sector, where workforces are frequently transferred between companies.
The fact that the legislation applies retrospectively could prove particularly damaging as clients will not have taken into account the extra expense for which they are now liable. It will leave contractors responsible for the deficit.
Peter Rimmer, head of employment affairs at the Heating and Ventilating Contractors Association, said: “The net result could have a severe impact on profitability and even redundancies because contractors would have no way of passing on these extra costs to clients.”
Rudi Klein, barrister and chief executive of the Specialist Engineering Contractors Group, said that under normal circumstances the regulations would be beneficial as companies would be able to demand more detailed information about the workforce they were about to take over. However, he said that the backdating of the pensions clause meant a large number of firms would suffer unfairly.
He said: “This will effect a large number of specialist companies and also other contractors.
“Construction will be hit by this as workforces are frequently transferred mid-contract, when one company takes over work from another or when a firm takes on a local labour force for a local authority contract.”
Trade associations are planning to lobby the government over the requirements in the hope of gaining an amendment revoking the back-dating of the clause. Many feel that the section was included without proper consultation.