Collapse 'could cost pension protection fund £80m'

The collapse of MG Rover could cost the Government's new Pension Protection Fund up to £80m, according to an independent analysis of the deficit in the car maker's pension scheme.

The collapse of MG Rover could cost the Government's new Pension Protection Fund up to £80m, according to an independent analysis of the deficit in the car maker's pension scheme.

John Ralfe, the former head of corporate finance at Boots, also criticised the way the pension fund had been managed and run with a heavy emphasis on equities. In a briefing note for RBC Capital Markets, he comments that in the few short years of ownership by Phoenix, "MG Rover was, it appears, a hedge fund which happened to own a few car production plants".

Working on published information showing that the MG Rover pension fund had a deficit of £67m as of December 2003, Mr Ralfe calculates that the cost to the PPF would be at least £50m.

The fund, which came into effect just days before MG Rover went into administration, guarantees workers still paying into a company pension fund and not yet retired 90 per cent of their entitlement, up to an annual maximum of £25,000.

But Mr Ralfe added that based on the estimate of the administrators that the deficit in the fund would be £200m if it was closed immediately, the call on the PPF could be in the order of £75m to £80m.

Mr Ralfe said hard questions needed to be asked of both the pension fund's trustees and actuaries and MG Rover's management about why 75 per cent of its assets were held in riskier equities rather than safer bonds when the position of the company was so precarious.

"Rover's asset allocation ignored the creditworthiness of the company sponsor, crucial in deciding asset allocation, which was weak from day one," he said.

"[They] should explain why they were prepared to run the significant mismatch risk for the pension scheme members."