Rover: Pension fund gamble

13 April 2012

DIRECTORS at MG Rover should be forced to explain why they pursued a high-risk strategy with workers' pension savings that led to a £400m deficit, says a leading pensions expert.

John Ralfe, former pensions boss at Boots, said their policy was so perilous that it amounted to 'running a hedge fund which happened to own a few car production plants'.

He made the claims as administrator PricewaterhouseCoopers became the first in the country to notify the new Pensions Protection Fund of the deficit.

A PPF spokesman confirmed it had received notice of both funds operated by MG Rover. The notification details that the deficit on a wind-up basis is in the region of £400m.

Writing for RBC Capital Markets, Ralfe said MG Rover invested 75% of its pension assets in the stock market - a risky move considering the weak credit-worthiness of its parent company.

The pensions black hole has been run up in the last five years. MG Rover's former parent BMW handed over enough assets when it sold the business in 2000 to ensure the pension scheme had no deficit.

The shortfall will affect 90% of MG Rover's existing 6,100 employees in the scheme, and will receive limited compensation from the PPF. Ralfe says the PPF may face a tab of at least £50m were the Rover scheme to be wound up.

SPECIAL REPORT: Read our full round-up of the collapse of MG Rover

Notification of the shortfall hit the PPF as the European Union received a brief email from the Department of Trade and Industry detailing its £6.5m payout to cover MG Rover's weekly wages bill. But EU competition spokesman Jonathan Todd said it needed full documentation before it could decide whether the money was in breach of strict EU rules on State aid.

Meanwhile, MG Rover's former parent, Phoenix Venture Holdings, offered to hand over assets of between £10m-£30m to a trust for the benefit of Rover employees. But that will only happen if Rover's administrator does not take up PVH's offer of handing over the very same assets to help bail out the beleaguered car maker.

PricewaterhouseCoopers has been appointed as administrator to MG Sport and Racing, which builds the MG SV sports car, employing 48 staff.

Today, some 150,000 drivers who bought new Rovers in the last two years are being told they are no longer covered by the firm's free warranty. Rob Hunt of administrators PricewaterhouseCoopers said: 'The company no longer has sufficient funds to reimburse warrants.'

Dealers normally carry out repair work under warranty and are paid back by the car maker but Rover dealerships are. on average, owed £100,000 by MG Rover which does not have the cash to pay them.

Rover does not have a poor record for reliability and warranty claims but it has up to £300m owing to trade creditors. The third year of warranty is funded by the dealer.

MORE ABOUT

Automotive Equipment (car Industry)

Pricewaterhousecoopers

Rover