MG ROVER’S controversial directors’ pension trust is to be substantially scaled back as the company nears the final stages of a vital partnership that will give a Chinese company effective control over the British business.

Payments to the directors’ pension trust, which have exceeded £16 million for five directors in the past two years will this year be cut by 90 per cent. The cut is unexpected, although MG Rover denied that the move was in response to pressure from Shanghai Automotive Industry Corporation (SAIC), China’s leading carmaker with which the company is expected to sign a full partnership deal early next year.

In 2002, the five directors of MG Rover’s holding company, Phoenix Venture Holdings, led by John Towers, chairman, and Kevin Howe, chief executive, set up a trust fund for their pensions with a payment of £12.9 million. The payment was said to cover the three years since the Rover Group was split up and sold by BMW in 2000.

Recently filed accounts for 2003 show a £3.58 million payment to the trust for one year. The payments are now set to be scaled back to about £360,000. The scheme will aim to give the directors annual pension payments of about £85,000 on retirement.

MG Rover’s move to address boardroom pay follows increasing criticism of its management and falling revenues that have reduced confidence in the company.

The news coincided with the announcement over the weekend of details of MG Rover’s planned link with SAIC. The agreement is expected to be approved by Chinese authorities by January or February.

SAIC will own 70 per cent of the prospective joint venture. Under the deal, the Chinese company will over several years invest £1 billion to launch four new Rover models. SAIC is also thought to want a minority equity stake in MG Rover. The company has begun preparatory work to produce the executive-model Rover 75 from its factories in China.

At present, MG Rover has firm plans to release only a medium-sized vehicle to replace its 45 model. However, the new model has been beset by delays and may not be in showrooms until 2006.

A spokesman for MG Rover yesterday said the five directors of Phoenix would not personally gain from the partnership deal. He added, though, that the link would enable MG Rover, which this year is expected to lose £100 million, to be more profitable, which would benefit its executives.

The company’s Longbridge factory will continue to produce cars for the UK and Europe. Mr Towers has said that the partnership will enable annual output to be increased from about 110,000 cars to about 200,000 — the level that was first envisaged for the factory when the Phoenix consortium took over Rover four years ago.

The independent carmaker has been unable to match the financial incentives offered to customers by its larger rivals. It also suffered sales problems in Europe because its dealerships dwindled when most retailers opted to sell Land Rover, which was sold to Ford when BMW split the business.

MG Rover has also completed its last land sale at its Longbridge site, a £15 million lease-back deal with St Modwen.

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