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Innovation: How to rebuild trust in pensions

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Technology and customer-service are central to rebuilding trust in pension systems 

Key points

• The new Dutch hybrid pension system is attracting much interest in the industry
• Collaboration with members will help to restore trust in saving for retirement
• New technology, such as blockchain and AI, will be the basis for offering better pension services

When it comes to retirement savings, everyone seems to be looking to the Netherlands. The country is fundamentally changing its pension system, moving from a defined benefit (DB) system to a hybrid of DB and defined contribution. 

We believe that the changes are much broader than just developing a new pension contract, and that these innovations will help strengthen trust in pension funds.

The sector is working on improving the quality of its service to members and on making it cheaper. This not only implies better communication, but also supporting members in making better choices. Members are becoming more diverse – in employment, household composition, personal finance and needs – leading to increased emphasis on ‘one size fits none’, more demanding members and societal debates on freedom of choice. 

The rising retirement age puts pressure on older workers, with the risk of their becoming ill or even incapacitated. The introduction of a lump sum at retirement will give retirees more flexibility, in addition to existing options like partial and early retirement. 

The Dutch government also wants to investigate the accrual of personal wealth in pensions and housing on an integrated basis, which will make financial planning more important. 

Pension scheme members do not make the best use of the option of early or semi-retirement. Therefore, we are working on a programme called ‘Retiring with vitality’ to address the issue of scheme dropouts were they in the workforce and help scheme members reach retirement age. New tools are being developed to help members with their financial considerations for retirement.

We have been working with participants to develop an app for members to easily calculate what early or partial retirement could mean for their finances. The app will be available later this year to members of the PFZW scheme.

Technology is evolving, with new solutions in big data, blockchain, robotics and AI being rolled out. We anticipate that social change will lead to more personalised services, requiring sustainable business models. Our customers expect us to respond to technological and social developments together with them. 

Innovation cannot happen in isolation, and our approach is therefore based on three Cs: connection, culture and customer. 

‘Connection’ refers to the fact that the new world requires an open-innovation approach where collaboration and sharing of information are central. We have joined initiatives such as Startupbootcamp, a network which supports early-stage start-ups, and Techruption, a Dutch public-private tech innovation partnership using blockchain. These partnerships help to build networks with other companies that have their own view on the future of financial services, and gives direct access to the latest insights on technology. 

‘Culture’ reflects the importance of fostering a culture among our internal departments and business lines to nurture the kind of innovation that results in new services for customers. We try to make small steps towards mastering new technology by testing it with our own staff first. 

‘Customer’ is the key to everything. We validate all new products and services with the participation of our customers.

Blockchain technology has the potential to significantly improve the services pension funds give members. 

PGGM has teamed up with APG to develop a pensions administration application to create an infrastructure fit for the future: low cost, flexible, robust, and based on blockchain. It addresses administrative and cost inefficiencies in the pension landscape by ensuring the accurate recording of the data needed to service the pensions of millions of people. The end result should be the creation of a single source of verifiable information on pensions. 

In addition, personal pension information will become more accessible for scheme members. The blockchain platform enables participants to get an integral view of their financial situation and ensures that the entire history remains preserved.

As blockchain is about decentralising a network, we mean to collaborate with multiple parties and stakeholders – and providing access to data will be key. Many parties need access to all or parts of a pension administration, including employers, scheme members and government agencies. If everyone with the required rights could have access to this information, it might not be necessary to copy and validate all the data. In time, it might be possible to manage a more flexible and transparent pension administration more cost efficiently.

Although our efforts are, at best, experimental for now, we need to create a better picture of the potential of blockchain. 

APG and PGGM are trying to solve the existing data efficiency issues in the pension sector, with scalability and privacy the toughest nuts to crack. The privacy theme is crucial from a legal perspective, and we are working with lawyers and regulators to establish how blockchain technology fits in with current laws and regulations.

It is tempting to approach the current debate on the Dutch pension contract very technically, but in the end the aim is to improve the trust of scheme members – and the first step in achieving that should be to offer better people-oriented services.  

To achieve that, we recommend that service providers:

• Follow an integrated approach – look beyond just pensions;
• Be ambitious but start small and experiment;
• Focus on what you do best and find relevant partners;
• Continually validate with clients.

Marjolijn Pouw and Niels Kortleve are innovation managers at PGGM

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