It’s both joyful and painful to publish this Q&A from Margaret Snowdon. It’s a pleasure to read such clarity about the future of pension administration but frustrating when you remember that this piece is over seven years old.

So much promise, so little delivery – thanks to Margaret for sharing this as a follow up to my thoughts on the tokenisation of pensions administration

Blockchain Thoughts 22 September 2016

by Margaret Snowdon OBE, Chairman of PASA

In what ways can blockchain technology be implemented within the pensions industry and how? (eg. asset management, admin, accounting, member statements, tax calculations?)

MS:  Technology is going to change the way we do business in future and Blockchain is one approach that has the potential to restore trust to a wide range of services in pensions, particularly where information and money changes hands.

It is a way for multiple parties to a transaction to share the same information via a secure network with amendment only possible through agreed network rules.  As such it could be used to transfers assets between fund managers, send statements or pay transfers and other benefits, collect pension contributions or even update individual member records on a scheme database.

It could be used to share and update scheme documents, service contracts as well as accounts and reports, and revolutionise the way data is stored and used, making it much safer to handle sensitive data, for example, like health records for medical underwriting of benefits or report to regulators.

The security of Blockchain could help combat cyber crime and pension scams.  All parties share exactly the same document or information, so the problem of version control would disappear.

What benefits could blockchain bring to the pensions sector – and of course, the cons?

MS:  Blockchain has the potential to include everything in pensions.  We now take the Internet for granted, but a few years ago, on line services were a mystery.  Blockchain is about the same again.  The pros are that data could be shared instantly between people who have a need to know and not with those who do not.  Only those in the chain have access to the data, so document security is enhanced.  Transactions can be completed more swiftly, at much lower costs and with more confidence and less risk of the cash or information arriving in the wrong place.  It avoids the single point of failure that large single databases can suffer.  It could reduce the effort in transactions and for example, in transfers, show that advice has been taken by an authorised individual or that a recipient is bona fide before money is released.

Cons are that although Cyber attack is less easy, it is not impossible and a successful hack could have a wide impact and that careful thought has to go into controls and permissions for access to ensure privacy.

Blockchain could change the nature of the pensions industry – how would the nature of the industry change of blockchain became used greatly?

MS: Timescales for transactions could reduce significantly meaning we could get away from the traditional turnaround times model to measure quality standards. Organisations are already exploring technology and digital solutions for member verification, for example using fingerprints or facial recognition for mobile apps .  Blockchain could be an answer, so that fraud would be more difficult.  Paper could really become a thing of the past, as wet signatures become obsolete.

Pensions is not known for being an early adopter of new technology – is it likely to implement blockchain any time soon? Or is blockchain already starting to be used within the pensions industry (and ideally any examples)  – or at least the broader financial sector?

MS:  Blockchain is very new and will take some time to evolve.  It will require leadership and ideas and probably government sponsorship before it will be adopted.  Perhaps the involvement of Fin tech in dashboard solutions will speed the path of Blockchain.

Blockchain could cause a lot of change for the pensions industry – do you think the industry would feel threatened by the new technology (eg. impact on job roles) or embrace its opportunities?

MS: there will always be threats but technology is going to change the way we do things in the industry.  There is no alternative.  The question is how fast will technology advance.

Just because it can change the industry, doesn’t necessarily mean it will be implemented to its full potential. How much of an impact do you think blockchain will really have in the coming years for the sector?

MS: Whether it is used to its full potential will depend on cost and leadership and the benefits to early adopters.  We really need to think seriously about creating a technology forum for the pensions industry as whole, so that we can all keep up to speed and think about how to solve problems as opposed to simply pointing them out.

How soon do you think blockchain will begin to have a role in the pensions sector?

MS: Well, we’ve started to talk about it and raise awareness, but it could take years given the diverse nature of the industry.  It will initially be focused on big transactions, typically banks and asset managers, but will spread. I think that the success of the pensions dashboard, especially with digital ID, will be a tremendous catalyst.