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TitleArchitectural co-evolution and correspondence in UK personal pensions. Doctoral thesis, Northu
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LanguageEnglish
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Total Pages311
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Architectural co-evolution and correspondence

in UK personal pensions







Nicholas Burton

PhD

2016







A thesis submitted in partial fulfilment of the requirements of the University of Northumbria

at Newcastle for the degree of Doctor of Philosophy





Research undertaken in

Newcastle Business School

March 2016

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With unit-linked personal pensions falling out of favour, and stakeholder pensions proving

almost impossible to make money from, insurance companies were stuck between a rock and

a hard place: on the one hand stakeholder pensions meant that

while on the other hand, “the market's moving more and more towards

open architecture and The attractiveness of SIPPs was “to create a

more efficient profitable product base that can you know sell on a lower cost base with fewer

people and make more money. You

SIPPs were therefore considered a product design that could make money and permitted a

much wider range of investments that could ‘plug and play’ into the product architecture,

-and-play because you can put any mutual fund in. The charging

structure differed by which bit you were in. You could add on commission. It was a real 'à la

carte' product (31), and a dominant personal pension coming to the fore:

which is a full open-architecture product, which again needed a much more stable system in

terms of the types of investments that you could hold. And so from that point of view you had

product innovation going to the fore; investment breadth going from funds or a wider fund

range to proper open- So, SIPPs became adopted by insurance companies

and fund management groups as an ‘open architecture’ modular pension, considered the

natural replacement to unit-linked and stakeholder personal pensions.



Many of the product components within a SIPP can be designed, developed or procured

independently of each other. As a respondent recalls

do the self-investment bit. So, we thought we need a stocks and shares component, which we

went and procured. We needed a discretionary fund manager proposition. So, we basically

went to open-market tender and had an initial panel. We needed a fund supermarket hub - we

procured it. We needed a commercial property proposition, we had to procure the

What developed was

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Income drawdown
42

was also a key driver in the development of the SIPP market. Although

first launched in 1995, it wasn’t until the wider investment choices within a SIPP became

available that consumers were attracted to the concept, “the wedge just got hammered ever

deeper with the advent of drawdown. The belief was we needed the SIPP to have drawdown.

So ultimately it was about holding shares rather than just funds or property and so on, so it

gave you much more freedom. So I think a lot of it is recognition, again a bit like the with-

profits to unit-linked transition, it was recognition that we're moving from fund-based

personal pensions that have gone from insured funds to more wider range through to open-

architecture, where you got much greater band-width” (17).



By the early-noughties, the ‘fund supermarket’ architecture had become necessary for any

meaningful new product development. As a result, insurance companies licensed IT systems

from fund management groups or other third-parties. And, “the reason for doing that was

because as we're launching a quasi-fund supermarket, we thought that their systems would be

more appropriate for a fund supermarket” (12), and “it was a nightmare trying to build a

fund supermarket around the old model and it didn't really work. And that's what drove the

decision to get into bed with suppliers” (12). As the fund supermarket architecture embeds,

interface standards begin to emerge across firm boundaries and permeate the industry, “there

was a degree of commonality and we saw that with the development of trading protocols and

wanting to be able to trade electronically” (25), and “I guess one of the things that changed

to make that easier was the introduction of industry standards. Different things depending

upon the component, it would’ve been introduced where everybody would deal with

everybody else in the same way” (1). In some cases, external third-party standard-setting

organisations (SSO) emerged to establish industry standards, “there was an external company

which was made up of some of the providers and suppliers who said wouldn’t it be a good

idea if we could talk to each other in a common language to make things easier’. So they set

themselves up as an independent firm” (1).












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Income drawdown was an innovation that permitted a consumer, in retirement, to leave their pension
.

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Appendix 8: Summary of evolution towards an open and modular product architecture













Mid-noughties

to 2012

Open and modular product architecture

(product platform)



Charges

/fees

Customer

service

Software

tools

Advice

Vertical integration

Fund

SIPP, ISA, CIS funds and other risk products

Intermediate markets

DFMs Draw-down Self-

investment

Commercial

Property

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Appendix 9: Summary of evolution towards a hybrid (platform) architecture

2012-2014 Hybrid product architecture

(product platform)



Charges

/fees

Customer

service

Software

tools

Advice

Vertical integration

Fund

SIPP, ISA, CIS funds and other risk products

Intermediate markets

DFMs Draw-down Self-

investment

Commercial

Property

Selective vertical integration

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