Beyond the annuity waiting room
Fintech is hard to escape in daily life – whether personal finance apps, crowdfunding investments or robo-advisers.
Pretty much all parts of the institutional investment value chain have been transformed by technology, whether through the rise of quants and indexed investments (innovations of the 1970s onwards) to new data platforms driven by custodians and others.
Yet when it comes to member experience, defined benefit (DB) pensions are less touched by technology than other sectors. Communication is infrequent, often paper-based, and the record keeping process has changed little. Even the processes and governance seem glacial to the outside, and anathema to the pace of technology in daily life – quarterly trustee meetings and triennial valuations.
Unlike defined contribution (DC) – where members are more involved by design, depending on the level of individual choice – being a deferred DB member is more akin to waiting for an annuity. You can’t make it arrive much quicker and as the benefit is defined to a greater or lesser degree, there is a limited amount to say or do about it.
But workplace pensions have a lot on their side given 75% of people worldwide trust their employer “to do what’s right”, according to the 2019 Edelman Trust Barometer – ahead of trust in NGOs, business or governments. According to an OECD study of 2015, trust in governments is just 43%.
“Governments need to install pensions and savings frameworks that command and maintain trust”
Despite the perceived backlash against tech firms such as Facebook, trust in technology firms is also high, according to the Edelman study, at 78%, even if this may seem somewhat misplaced at times.
New technologies like blockchain can enhance trust if applied correctly. Not only can blockchain be used to generate and maintain peer-to-peer trust through distributed ledger technology, it also has the ability to enhance confidence in business by providing proof of origin in supply chains, for instance.
Blockchain has moved from experimentation to rollout in finance – with the first blockchain-enabled mutual fund launch in 2017. In the Netherlands, leading pension providers are developing a blockchain-enabled platform to facilitate pension benefit transfers.
Aside from technology, system design is often overlooked. Governments need to install pensions and savings frameworks that command and maintain trust. Providers need to work together to provide common trust-enhancing tools like dashboards or tracking services.
Given that over 90% of pension assets are in just seven countries, according to Willis Towers Watson, technologically aware pension design can help the development of new pension systems around the world that bypass old architectures. Pension funds need be annuity waiting rooms no longer.
Liam Kennedy, Editor