For Mark Wood, the saga that is the British pensions industry is entering its end-game. Years of increasing red tape, rising liabilities and a population intent, it seems, on living ever longer have left it at a crossroads. Mr Wood, the founding head of Paternoster, the pensions buyout specialist, believes that he has the answer to questions being asked ever more nervously in boardrooms throughout Britain.

Nigel Lawson started it. Back in 1988, the then Conservative Chancellor of the Exchequer introduced a tax on pension fund surpluses through a new accounting standard, SSAP24. What followed included company contribution holidays in the 1990s, Gordon Brown’s removal of tax relief on dividends in 1997 and harsh new snapshot pension accounting standards — not to mention increased payouts to that longer-lived population.

And all this was capped by the 2004 Pensions Act, which, among other things, made fund trustees personally liable over problems with their funds, forcing companies to shut their pension schemes in droves and to seek ways to wash their hands of the whole problem. Moreover, thanks in part to the creation of a Pensions Regulator in 2005, they can.

Which is where Paternoster comes in. The company is small. It has a staff of just 95, about 50 of them India-based specialist actuaries and risk assessers, but in the growing market for taking on the pension liabilities of companies that no longer want, or are no longer able, to deal with them, it thinks big.

As Mr Wood says: “There is now a market for the transfer of solvent pension schemes to insurers.”

There are parallels between the arrival of Paternoster on the pensions scene and Resolution, the company set up by the former broker Clive Cowdery and which is now in the FTSE 100. Resolution was set up to merge closed, or “zombie”, life funds. When asked whether Paternoster could repeat that “consolidation” for pension funds, Mr Wood replies simply: “Yes.”

Paternoster argues that it can better manage a stumbling pension scheme because of its hyper-detailed risk assessment of individual policyholders. It believes that it is the only firm to examine scheme members one by one — feeding their sex, marital status, salary, career background and even their postcode into a system that generates a complex risk profile.

Then it transfers out of a fund’s riskier holdings, such as equities and property, in favour of long-term, liability-matching bonds. This risk-averse policy also means that it has to put aside less capital as a reserve against things going wrong.

Paternoster collects no fee for taking on liabilities, simply making a profit if its assumptions prove correct and there is a surplus left in the fund. Payouts should normally begin after four or five years.

Mr Wood stops short of claiming that Paternoster has the wherewithal to take on a FTSE 100 pension scheme, but he argues that the prospective market is huge: “There is £1 trillion of assets within defined benefit pension plans, of which FTSE 100 companies represent about £400 billion. That means there are 9,900 schemes representing £600 billion of assets, of which £380 billion relate to the provision for people who have already retired. That £600 billion will move from individual companies to the balance sheets of insurers.”

In its first annual results, out next week, Paternoster — named after its proximity to Paternoster Square in the City — is on course to report that pension assets under management have reached almost £500 million. It has taken over 20 schemes at a rate of about one every two weeks, including the one for the Institute of Chartered Accountants. And it now manages pensions on behalf of 10,000 policyholders.

Although still seen as a pensions upstart, Paternoster is backed by some serious City money. Its biggest investor is Deutsche Bank, whose global markets head Anshu Jain took a personal interest in the project. Deutsche, Numis, the stockbroker, and Eton Park — composed of former Goldman Sachs partners — took part alongside five other asset managers in a £500 million fund-raising ahead of the company’s launch. Just £50 million of that has been drawn down so far as “start-up capital” and also used as reserves to back acquired funds. Paternoster therefore has the ability to manage pension schemes worth between £6 billion and £10 billion.

However, it is no longer alone in the market. Mr Wood concedes that its main competitor is Legal & General, a long-time specialist in buying the bulk annuities needed to ensure that members of shut pension schemes receive their annual payments. “We are beginning to see AIG and we expect to see Goldman Sachs,” Mr Wood says. “There is Scottish Equitable, and Aviva have dipped their toe in the water and we expect them to return. There is overseas interest from MetLife, Canada Life and SunLife of Canada.”

He speculates that, added together, rivals could probably take on about £50 billion of pension assets. If his assumptions are right, that still leaves plenty to go around.

If Paternoster does grab its fair share, or more, Mr Wood’s decision to set it up will be vindicated. Indeed, the former head of Prudential in the UK may be an unlikely boss for a one-year-old start-up, but he has pedigree in the role.

“In the mid1980s I went in with Barclays and a computer facilities company called MMW to create a clearing broker in response to the Big Bang,” Mr Wood, also a former Price Waterhouse accountant and chief executive of AXA in the UK before moving to the Pru, says. “I said at the time that when I’d paid the last of the school fees, I would do this again. They may have been different business models, but both of these two companies were based on new concepts and both of them resulted from legislative change.”

Two years ago in July Mr Wood wrote the final cheque to cover the education of the last of his three children. And when he lost out to Mark Tucker for the Prudential group chief executive’s job in 2005, the die was cast and he left the Pru to set up Paternoster.

Since then, Mr Wood has had few regrets, although he does admit to experiencing a pang when he was unceremoniously splashed by a passing car. It was driven by his former chauffeur.

CURRICULUM VITAE

Name Mark Wood

Age 53

Family Married, with one son and two daughters

Education University of East Anglia, BA in Economics

Hobbies Playing tennis and skiing

Career Mark Wood started his career in Price Waterhouse (now PricewaterhouseCoopers), with which he qualifed as an accountant. While with the firm, he developed a specialisation in financial services and life insurance.

He went on to join Commercial Union before stints with Barclays and BZW, its investment banking arm. Later he worked for a string of insurers, including AA Insurance. From 1997 to 2001 he was AXA’s chief in the UK.

Mr Wood was headhunted in 2001 to become UK and Europe head for Prudential, the British insurer. He left in 2005 when the Pru group chief executive role was won by Mark Tucker.

Mr Wood went to set up Paternoster, the London pensions buyout specialist, which he heads and of which his fellow directors include Sir Howard Davies, former head of the Financial Services Authority.

He was deputy chairman of the Association of British Insurers from 1997 to 2000. He has been a trustee of the NSPCC since 1997 and became deputy chairman of the children’s charity in 2000.

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