The pensions move to watch

According to Mercer, which advised on the deal, it broke new ground because of the willingness of those bidding for the assets to take a chance on the quality of the data in the fund - and assume the risk that the detail of how much the fund was obliged to pay and to whom was accurate. If not, the buyer makes up the difference.

Competition for the contract was acute - there is a lot of underemployed capital chasing business such as this - so presumably Paternoster was more willing than the others to take a punt.

Significant though this deal is in that it suggests the pension buyout market is beginning to unfreeze as companies become more willing to take a financial hit in order to offload their pension liabilities, it is not the most significant development in the world of defined benefit pensions.

Claim for this lies with Pension Corporation, headed by Ed Truell. It has been negotiating with the trustees of Telent, the company that holds the remaining assets of Marconi, on what needs to be done to secure trustee approval for a proposed takeover of Telent.

The deal is important because Truell's company is buying Telent only to get its hands on the pension fund, which is not only very big but also, unusually, has a £500 million escrow account as insurance against future deficits.

Truell has done this kind of deal before and owns the pension funds of the one-time high-flying electrical company Thorn and of Threshers, the off-licences business, but he got those without causing too much of a stir. This time, however, the pension regulator has been sufficiently alarmed at what the change would mean for the future of the fund's sponsor company to appoint three additional trustees to make sure they fight their corner in the ensuing negotiations.

It is the first time the regulator has done this, and one can see why. The nation's £800 billion of defined-benefit pension fund assets is perhaps the last great pool of money wide open to predatory attack because their governance and regulation is light years behind what is insisted upon elsewhere.

The Truell business model is based crudely on the idea that he will be able to run the pension funds so well that he will pay all the pensioners in full and will still be left with a surplus, which will be his. His is a long-term game because it could be 15 years or more before a surplus is clearly identifiable, but presumably he has plans for the earlier siphoning-off of excess cash should it prove necessary.

The key point, though, is that as things stand he has a significant edge on Paternoster in competing for pension fund assets because he is willing to buy the whole business to get at the fund - the business alone then being resold. By doing it this way, Truell avoids the need to commit the vast amounts of capital that firms like Paternoster need to deploy when they buy the funds direct.

That means his operational cost is significantly lower than it is for competitors who have to apply insurance company standards. It is one of those bizarre loopholes you get when Parliament-legislates on things it does not understand.

The fact the regulator has become involved in effect makes this a test case for the Truell approach, and it is a worthy one as the Marconi funds are huge, high-profile and potentially well-funded.

The viability of the model depends on Truell's ability to do a deal with the trustees, and the presence of the regulator means they will be no pushover. If they reach a deal, we can probably expect a lot more of the same. But if the trustees are unconvinced, it will be interpreted as a signal that the Truell approach cannot be widely applied. Either way, the implications for companies and their pension schemes are huge.