21:54 Friday 08 October 2004 00:27 Saturday 09 October 2004

OPEN architecture may not be a term many have heard of in relation to finances, but if you have a pension fund whose payout is not determined by a proportion of your final salary then it is a term you should be familiarising yourself with.

Simply put an open-architecture structure gives pension savers access to the investment funds of more providers than that named on their pension plan. So someone with a personal pension plan with Standard Life can actually put their retirement savings into funds managed by Fidelity and Invesco Perpetual. And likewise someone with a Scottish Widows pension could have their funds invested with Schroders or New Star.

Tom Munro, a director of Edinburgh-based independent financial adviser Ian Maclean, believes the trend towards open architecture is good news for investors as it brings advantages of diversification, flexibility and efficiency.

Munro said: Open architecture has effectively changed the playing field in asset management in the UK.

The main benefit is diversification. The fact portfolios can be created spreading capital across different management groups, sectors and asset classes significantly reduces risk at low cost removing the ‘eggs in one basket’ scenario.

Pension providers have taken different approaches to open architecture. While some groups have opted for a solution that gives savers access to almost the entire UK fund universe, others including Standard Life and Scottish Widows have taken a more selective approach.

Selection means that while pensions investors are offered a smaller number of funds (compared with the hundreds on offer elsewhere), the 70 or so that are on offer are best of breed and have been thoroughly researched by the pension groups before being added to their platforms.

Scottish Widows’s open-architecture product is called Investment Solutions. It is adding a further four externally managed funds to its platform from 24 October.

Ciaran Woods, head of savings and investment market development, said: It is essential that the funds we offer meet the needs of our customers.

Scottish Widows has a proven track record in being pro-active in providing a quality fund range that continues to meet the high standards expected from our Investment Solutions product.

We have listened and developed our fund range to provide the extra investment choices that will prove attractive for many clients.

Anyone with a personal pension, group personal pension or executive pension plan who isn’t already aware whether open architecture is an option with their plan should check with their provider or IFA.