Imagine you can look up the balance of your benefits at any time, perhaps making a payment or adjusting an investment allocation.
You may think that it is not very exciting to have instant access to your pensions statements. But what you are looking at is your asset pool, not a record, and it is using blockchain.
A payment made or an asset transferred could have immediate effect in real time, avoiding a cumbersome series of steps, and laborious paperwork, with an inevitable delay between payment and asset allocation. Assets could be tagged and tailored, so once added to the pool, they are only eligible for pensions-related activities. Algorithms could be built in, ensuring an investment decision will only be processed if it is consistent with a predefined investment strategy. Pensions providers may evolve to provide supporting services, such as designing life profiles, or advising on strategy.
Blockchain is likely to have a significant impact on the pensions and benefits sector. By applying blockchain technology, providers will be able to improve delivery, encourage ownership, reduce inefficiencies, speed up the allocation and settlement process, and reduce costs.
Blockchain technology enables a digital platform that allows information to be verified across a network, using cryptographic algorithms. Digital information transmitted through the system is grouped into blocks, which when verified by nodes (computers) on the network, are added to a blockchain. This is independently held by each node participating in the blockchain, ensuring that no-one can tamper with the information, providing an irrefutable record of the underlying transaction.
The veracity of the record is what makes the technology appealing. Up until now people have relied on the honesty and reputation of the record holder, for example, banks, large institutions, and governments, because their only claim to an asset may be a written statement from these bodies. With blockchain, the block when added to the blockchain represents the completed transaction for both parties, without more documentation being required.
There are numerous regulatory and legal issues to be considered to enable a fully functioning and effective blockchain offering for pensions-related activities. Recognising and protecting property rights, ensuring appropriate use of the system, and identifying the role and permissions of participants are just some elements that need to be built into the system, while consistently managing confidentiality and data protection issues. These issues are, however, well advanced. The advent of a better customer experience and a more efficient technology-led service may not be so far away.
Martin Bartlam is partner at law firm DLA Piper
Find out more about blockchain technology and what it means for employee benefits at Employee Benefits Live 2017 on 11 October at Olympia, London