Leading Dutch asset managers APG and PGGM have successfully completed a prototype of a blockchain-driven pension administration system.
With their prototype, the companies have provided the first concrete use of blockchain technology within the pensions sector.
Blockchain, the technology behind cryptocurrencies such as Bitcoin, is a form of distributed ledger technology designed to securely process and store digital transactions.
Further research into the method must produce a more flexible and transparent administration system with significantly lower costs, the APG and PGGM said in a joint statement.
The prototype involved the administration of a virtual defined benefit scheme with 10,000 participants, under arrangements similar to APG’s company pension scheme. A virtual employer then fed salary data and information regarding life events, such as a wedding and a divorce, into the system.
The providers said the next step would be to add elements such as an administration of benefits and contributions, and subsequently run the entire administration of the APG scheme on the blockchain in parallel to its current system.
APG and PGGM – asset managers and pension providers for the €389bn civil service scheme ABP and the €187bn healthcare scheme PFZW, respectively – said their prototype was designed to lead to a new kind of pensions administration, providing access for the pension fund, its sponsor, participants and the supervisor.
The various players would have their own key to access and rework the data that are relevant to them.
Among the benefits of the blockchain is that data don’t have to be passed on and copied between players.
“Individual data have been stored several times and in different places, and also in different systems in case somebody has several pensions,” explained Hidde Terpoorten, who heads APG’s blockchain project.
The blockchain technology is designed to be more efficient and to generate less errors than existing methods of pension scheme administration.
“Every adjustment will be stored separately and the history of transactions can’t be changed. As a consequence, it will always be possible to trace errors,” said Marjolijn Pouw, innovation manager at PGGM.
APG and PGGM said they didn’t know when the technology could take over the real administration, as it was still in its early stages.
The transfer of financial value, such as premiums and benefits through the blockchain, however, is still very far off to APG.
“The Dutch legal conditions are not available for this,” said Terpoorten.
He said that investment administration could be a promising additional implementation of blockchain technology.
The blockchain research is being conducted jointly by APG and PGGM and carried out by a 10-strong team, which co-operates with internal staff as well as external developers.