Mark Wood has come a long way, but the journey is not over yet, the new chief executive of JLT’s employee benefits business tells David Blackman
In a corner of Mark Wood’s west London home sits a cartoon of the recently appointed JLT employee benefits chief executive clad as the caped crusader. It was commissioned by his staff at Paternoster, when he was chief executive, after a glowing Daily Telegraph profile dubbed him the ‘pensions Superman’.
“Not two words you often see in the same sentence,” Wood observes drily. Life wasn’t always easy for Mark Wood, though.
He was educated at a secondary modern school, where he overcame dyslexia to read economics in tertiary education. After qualifying as a chartered accountant, his progress up the corporate ladder was stellar. By the age of 43, he was chief executive of AXA (UK).
Five years later in 2001, he moved to become the head man at the Prudential’s life assurance operations. But he made his biggest splash when he left the Pru in the mid-Noughties to found what was at the time Britain’s biggest start-up business, Paternoster, with £500m of private equity backing.
The company swiftly became the market leader in the buyout market before falling victim to the financial crisis. Paternoster effectively closed to new business in 2009 before it was bought in the following year. Wood is keen to set the record straight on Paternoster.
“It didn’t come unstuck, we were acquired by Goldman Sachs,” he says, explaining that the objective was to sell after proving the buyout concept worked. “Every time I get irritated that Paternoster was acquired, my wife reminds me that that was the plan,” he says.
But that was then, and now, after a two-year spell as chairman of JLT’s employee benefits business, he is back in the pensions limelight. At the beginning of the year, he took over as chief executive following Duncan Howorth’s switch to oversee JLT’s wider operations in the Far East.
So why, at the age of 60, is he launching himself back into the full-time corporate fray?
“I’ve got no actual interest in packing up at 60 or 65,” he says,” God willing and actuarial tables being reliable, I’ve got another 20 or 30 years. We are all going to recalibrate our working lives.”
A CHANGED LANDSCAPE
However, what he describes as “extraordinarily beneficial improvements in life expectancy”, throw up massive challenges, muses Wood.
“We face retirement that is far, far longer than anything that anybody has experienced in the history of mankind. It’s literally a new phenomenon. That’s an extraordinary social issue that we’re only just beginning to grapple with: even today people don’t have an appreciation of their life expectancy.
“If people think about it rationally, they should be thinking of a whole heap of things about the way they plan their lives, but there’s no general recognition of that.”
Tongue firmly in cheek, he adds: “If I think of my vodka-swilling 32-year old daughter, her mean life expectancy is 100.”
The “huge dangers” of this increased life expectancy and the shift to greater personal responsibility in pension provision may not become clear until the first, impoverished post-defined benefit generation of pensioners has retired, he warns.
Nevertheless, Wood says he is “delighted” with how auto-enrolment is panning out so far, adding the caveat that it is still early days. “The contribution rate is very, very low and we’re at a very early stage so we are unlikely to see a big drop-off rate. My one hesitation with auto-enrolment is that I worry that for a number of years the level of contributions is not going to be that meaningful.
“When you look at the pennies coming out of pay packets it doesn’t really mean anything. The quid pro quo is that benefits are very low. In 18 months people might think the amounts are so low they might think they want that extra pint a week instead.”
“I don’t think that’ll be the case, our experience suggests that people will stick with it because there is latent within all of us a desire to be prudent and prepare. But I think we have to be cautious about getting too enthusiastic about the very high take-up rates at the moment.”
Wood is also worried that auto-enrolment might lull savers into a false sense of security. “The worry with auto-enrolment is that the level set by the government will be understood as the right level of saving. There’s a huge mismatch between the implied appropriate rate of saving and what people need to be doing.”
He says contribution rates should rise, pointing to TUC research showing that 16-18% is the right level to generate a decent retirement. But it will be hard to increase contributions in the current climate, he acknowledges. “It’s a payroll tax and we are in a recession so until we are seeing a much more buoyant employment environment, particularly for [small and medium-sized enterprises], it’s very difficult to see how you can see it going up.”
In the light of concerns about consultancy charging, he observes that auto-enrolment will also present challenges to pensions advisory firms’ business models.
“Anything that is denuding the amount of people’s pensions is a bad thing. The problem with a time and remuneration-based arrangement is that there is very little incentive to be efficient. I suspect we need to address that.”
But auto-enrolment also presents opportunities for JLT, which currently ranks around fourth in the pensions consultancy league table with an 11% market share.
“Because every company in the country has to go through this process, it’s a huge opportunity for us to show off our capability and competence. It’s a break in the traditional way of doing things so it gives us an opportunity to work with new people.” Wood says other employers are watching the progress of Morrison’s cash balance initiative, which JLT advised on. He will be ‘surprised’ if other companies do not follow in the supermarket chain’s footsteps.
THE CHALLENGES AHEAD
Meanwhile, over in the defined benefit world, Wood suspects that deficits will attract increasing City attention. “It is remarkable that stock market analysts are not preoccupied more by the promise to pay in the pension system.”
However, he is no fan of CBI-inspired moves by the Treasury to smooth deficits, which he dismisses as “look back and pick a discount rate”.
“It may help to alleviate the pressure in term of the presentation of the accounts. It does not fundamentally change the underlying amount that will need to be derived to pay the pensions. “It’s a little bit of an illusion and unhelpful because it sort of implies that you don’t have to think about the deficit when you are valuing, which clearly you do.
“As a humble accountant, if we are giving a true and fair view of a balance sheet date you have to take account of what it looks like on that date, not five years before, or what we are anticipating five years hence. That’s the most truthful way of looking at the numbers.”
Whatever happens in the smoothing debate, Wood believes de-risking will rise on schemes’ agenda, expressing cautious optimism about the prognosis for buy-ins and buyouts, due partly to aggressive pricing by some buyers. “We’re seeing the market come back a little,” he says.
He predicts a big rise in activity in 2014.
“Inflation is the friend of buyouts and I think we will see huge inflation. I’m not bright enough to see how you can pump billions into the economy and not inflate.”
And JLT will be ready.
“We’ve got a good team – I will interfere given half a chance, which would clearly be a very bad idea,” he adds in jest. As for JLT itself, the company’s growth appetite was demonstrated by its recent acquisition of Alexander Forbes’ employee benefits business.
Wood says: “We’re absolutely focused on organic growth, but there will be opportunities to buy business. We’re in an industry where there are a large number of technically capable people working for a wide range of businesses, so opportunities will present themselves. We’ll continue to look.”
Role: Chief executive, UK employee benefits group, Jardine Lloyd Thompson. Formerly chief executive of AXA UK, Prudential UK and Paternoster
Education: Economics, Ruskin College, Cambridge
Family: Married with three children
Outside interests: Chairman of trustees of the National Society for the Prevention of Cruelty to Children and director of the RAC