Rover may be first pension protection fund claimant

Lord Oakeshott, the Liberal Democrat Pensions spokesman, led calls yesterday for the four directors who bought Rover from BMW four years ago - the so-called Phoenix Four - to be forced to contribute to the company's pension fund deficit.

Lord Oakeshott, the Liberal Democrat Pensions spokesman, led calls yesterday for the four directors who bought Rover from BMW four years ago - the so-called Phoenix Four - to be forced to contribute to the company's pension fund deficit.

The four directors have paid themselves about £40m since taking over the company and have set up a sizeable executive pension fund for themselves.

The Rover Scheme is believed to be nursing a deficit of more than £100m, with thousands of workers set to lose a significant proportion of their pensions after the group moved into receivership yesterday.

The Liberal Democrat peer said the new pensions regulator, which opened three days ago, should use its new powers to force the directors to pay up.

"First at Mayflower/Dennis, now at MG Rover, directors have secured their financial future, leaving thousands of workers to stare over a pensions precipice," Lord Oakeshott said.

"Parliament, through the Pensions Act, has given the new Pensions Regulator sharp, strong teeth. He must not hesitate to use them if he finds evidence to justify serving a Section 38 contribution notice on any or all of the four directors of Phoenix Ventures Ltd, which would make them personally liable to make payments to the trustees to help meet the MG Rover pension scheme deficit.

"I am asking him to carry out an urgent and rigorous inquiry into the directors' conduct, including the sale of the 276-acre Longbridge site to property developers and whether the directors would also benefit from a share in future profits if the site is redeveloped?"

MG Rover could be one of the first companies to call on the services of the new Pensions Protection Fund (PPF).

If a buyer cannot be found, it will be broken up, with the pension scheme almost certain to wind up and fall into the hands of the PPF. For all scheme members who have yet to retire, this will mean an automatic loss of at least 10 per cent of their pension, as the new PPF pays only 90 per cent of expected benefits. It also caps its annual payouts at £25,000.

Although Rover's accounts show its pension fund to have a deficit of only £68m, this is using several accounting assumptions which do not apply once the fund is wound up. The true deficit is believed to be more than £100m.

Stephen Yeo, a partner at Watson Wyatt, said the recent change in pension legislation was probably one of main reasons the Chinese pulled out of talks with Rover. Under the new legislation, the buyer is forced to take responsibility for pension deficits of businesses it acquires.

MG Rover is one of a handful of companies which are both in administration and nurse a significant pension fund deficit. Turner & Newall, the car parts maker, remains the biggest worry for the PPF. Its £1.9bn fund, which has up to 40,000 members, has an estimated deficit of £875m.