MG Rover's would be partner, Shanghai Automotive Industry Corporation (SAIC), has signed a deal with another Midland automotive firm to help it develop cars and engines in China.

The tie-up between SAIC and engineering consultancy Ricardo could see former technical staff from Longbridge taken on.

Ricardo, which has a base in Leamington, could recruit up to 150 staff to carry out research and development work for SAIC, which pulled out of its joint venture with MG Rover last month.

The development came amid fresh doubts surrounding the financial security of the MG Rover pension scheme.

The scheme, which has a £400 million deficit, has applied to join the Government's Pension Protection Fund, which was set up last month to safeguard the pensions of insolvent firms.

But yesterday the PPF said it may have to cut the benefit cover it offers members of failed retirement schemes if it hits a financial shortfall.

Chairman Lawrence Churchill said the PPF could have to trim its compensation levels from the 100 per cent to existing pensioners and 90 per cent to the future retirees.

He told the annual conference of the National Association of Pension Funds that legislation left open the option

for the PPF to cut benefit cover, adding: "We would consider it as a measure of last resort."

The research and development deal between Ricardo and SAIC will the see the engineering consultants work on engines, transmissions and whole vehicles.

Rodney Westhead, chief executive of Ricardo, said: "We will be doing the whole gamut of things to help them develop vehicles.

"We do not do the design or the styling, but everything under the skin we are able to do.

"SAIC does not have the research and development capability we have. We are now looking to recruit 50 people and that could rise to 150."

Mr Westhead said this could include former MG Rover workers who had spent secondments in China with SAIC before the planned joint venture broke down.

He confirmed that some ex-Longbridge workers had already been approached.

But Mr Westhead could not say whether the work would revolve around new models or reversions of the Rover 75 and 25 which SAIC owns the intellectual property rights to. Among projects undertaken by Ricardo has been the design work on the new Mini.

Mr Westhead said Ricardo had been approached by SAIC after the Longbridge deal broke down, although the firms had worked together for the previous two years.

"They realised they needed the technology and skills we have. They want to grow their own technological capabilities and we can help them do it."

A spokesman for SAIC said: "We are delighted to be working with Ricardo who are regarded as one of one of the leading automotive consultants in the world."

The PPF has already been asked for help by the three MG Rover pension schemes.

So far only one of the carmaker's schemes, the MG Rover Contract Related Pension Scheme, has been declared eligible to be assessed by the PPF for possible aid, a spokesman said.

Critics say the PPF could be overwhelmed by a flood of calls for help and say the UK taxpayer will have to step in to underwrite the schemes.

If the PPF were hit by a rush of claims during a recession, it could only remain solvent by slashing its benefit cover, which would be politically difficult, Anthony Neuberger, professor of finance at Warwick Business School at the University of Warwick, said.