Retirement planning deals with massive amounts of data clusters across multiple processes. Keeping participants’ assets safe is one of the major responsibilities of plan providers to ensure customer trust.
Defined contribution (DC) plans such as the National Pension Scheme in India and 401(k) in the US have become mainstream, but there is no designated registry to track all the retirement plan accounts and their status on one platform. The entire ecosystem is far from simple, with participant data processed across several levels like plan sponsors/employees, record-keepers, asset managers, third-party administrators, insurers, government agencies and more. The sector is still heavily dependent on legacy systems. Establishing an automated system to track funds and rollovers would prove to be a huge problem solver for both users and providers.
Blockchain is basically a distributed ledger technology that allows data to be stored on multiple servers worldwide. It has emerged as a viable, modern solution to problems in various sectors. Blockchain is proving to be an essential technology for record-keeping and financial transaction services, making it a viable investment in the retirement plan industry.
The retirement plan ecosystem functions on various levels and the participant data is processed through each stage. Blockchain tech allows retirement plan providers to cater holistic services to their customers in a streamlined fashion. Security and immutability are the two major reasons why Blockchain is ideal for the retirement plan industry. Here’s why Blockchain could help transform the sector:
Keeping plan integrity intact
Many problems in the ecosystem arise due to lack of transparency. Blockchain allows multiple stakeholders to take charge of different processes and there’s no need for a single central authority. This way the power can be distributed, and one party doesn’t have to be in control. Blockchain allows transparency to be built in at the protocol level as data that is once recorded cannot be modified or erased.
Efficient participant ledgering
Blockchain experts have proposed a system of plan participant identifiers to help plan sponsors and participants paddle through millions of data files shared across multiple parties. With unique identities, plan sponsors and participants can distinguish their asset data instantly and process decisions more effectively. When in need, they could also cross-link data across multiple parties and cross-reference them.
Smart contracts to assure funds delivery
Blockchain technology helps the pension ecosystem to utilize the advantages that smart contracts offer. Smart contracts are nothing but self-executing contracts on predetermined conditions among stakeholders. This program doesn’t require any intermediary’s involvement and helps save a lot of time. This eliminates fund seizures and hidden costs, ensuring exclusive delivery of funds to beneficiaries. With smart contracts the delivery of pensions to the participants becomes a reality through greater mobility and accountability.
This technology also allows participants to move their funds easily. Blockchain-based pension system records every retirement plan occurrence. This brings transparency to the whole system and increases accountability of the stakeholders towards timely delivery of funds. This promotes competition between providers and allows consumers to make well-informed choices.
Participants’ assets, especially immutable data assets, are most prone to cyberattacks and are among the biggest threats when it comes to digitizing retirement planning. Due to the overall system of various levels of data transaction among multiple parties, a combined, end-to-end cybersecurity strategy becomes difficult for plan sponsors to develop. Data immutability is the fundamental principle of Blockchain and once it’s stored, the information cannot be counterfeited. The technology also makes it extremely difficult to hack concurrent nodes simultaneously to retrieve data by allowing adequate cross-referencing, nodal connections, and thorough encryption.
Most of the financial services existing today do not give a clear picture to the end-user on how their data is recorded, maintained, and communicated. Despite this, participants trust them with their assets. Blockchain technology opens up avenues for transparent collaboration amidst all levels without compromising on the security aspect. This way, participants can be empowered to have control over their data across all levels by the plan administrators and plan sponsors.
Efficient storage, documentation, and management
Documentation is yet another challenge when it comes to the retirement planning. There’s a large repository of data such as service agreements that needs to be stored and maintained securely. And this involves multiple departments that review these documents and share with relevant external parties. Blockchain helps in efficient record management and is specifically designed for this very purpose. It can be the perfect solution to simplify and expedite the reviewing process through its time stamping and tracking features. Blockchain strengthens the security of the overall system by restricting access.
The retirement sector thrives on trust, which can be delivered through integrity, operational improvement, and enhanced customer experience. Blockchain brings the opportunity for service providers to deliver greater participant engagement through automation, accuracy, and transparency.
Although Blockchain assures significant advancement in delivering a smooth retirement planning experience, the implementation of this technology is still in the nascent stages. Adopting Blockchain would require a lot of understanding of the applications and, hence, needs to begin at a smaller scale to administer the technology cost-effectively.
(The author Arvind Venkatraman, CTO, Congruent Solutions and the views expressed in this article are his own)