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2022/01/04

How Blockchain Can Transform A Pension EcoSystem

By Rupesh Ghimire

Pensions are indeed a big reason why many people can afford to quit their jobs and enjoy a well-deserved retirement. Although pensions are still available, most of the businesses that provide them have struggled to keep the promises they made to their former employees, owing to the brutal reality of the world economy. Blockchain technology has the potential to simplify pension administration and allow retirees more control over their funds. For most adults, retirement is a watershed moment, but despite the feelings of adventure and excitement that come with leaving the workforce, this stage of life must be viewed through a financial lens first. With age, one's ability to create income decreases, and no one wants to be a burden on their family or the government. By allowing cryptocurrencies to be included in pension portfolio investments, blockchain is making retirement plans more accessible to younger people, who are most in need of starting to prepare for their retirement.

Cryptocurrency stimulates the upkeep of a system where all parts of a pension are out in the open, thanks to an incentivized system for grading funds and financial institutions based on their performance and conduct. As a result, those in charge of selecting retirement plans for their employees or themselves can understand what a fund is invested in and, more importantly, how competent it is in establishing a long-term financial future while adhering to commitments. Below mentioned are some benefits of blockchain in the pension industry:

Benefits of Blockchain in the Pension Ecosystem 

The blockchain ledger will eliminate unnecessary intermediaries and provide transparency, increased choice, and clear accountability for retired people to choose the investment opportunities that are ideal for them. It has the potential to make retirement plans more accessible by incorporating cryptocurrency investments alongside traditional financial assets. These are aimed at a younger demographic that is in desperate need of starting to save for retirement. Let's look at a few benefits of blockchain in the pension ecosystem:

Security 

Retirement is a time in a person's life when they hope to be able to enjoy the results of their labor without being bound by the constraints of a job. However, with the rise in cybersecurity breaches, retirees find it much more difficult to live the luxury lifestyle they planned for years. Their safety net may be compromised, and finding another source of income at their age may be difficult. In this case, blockchain can assist by:

Enhanced safety

Blockchain is virtually impenetrable to traditional pension fraudsters, preventing any alteration. Blockchain makes payments and investments far more secure.

Improved transparency

People may feel certain that their pensions will remain intact and that any suggestion of questionable activity will be on the full show because data in a blockchain cannot be edited or destroyed.

Retrieve lost pensions 

Through smart contract technology, a blockchain pension ecosystem would be able to minimize fund seizures and reduce hidden expenses by allowing providers to transmit funds directly to beneficiaries. This would also motivate providers to enhance their services because consumers would be able to see how each provider handles pension funds and make more educated selections as a result. When a person is younger, losing track of pension funds may not be a serious concern. This, however, will alter when they approach retirement and begin crunching the figures. Regardless of how many professions a person has had in their lifetime, blockchain can give a method for them to keep track of their pensions.R3 has previously built a blockchain-based solution to assist people in reclaiming their lost pensions. The fundamental issue that R3's solution tackles is the many, outmoded, and susceptible techniques that pension providers employ to verify the identities of pension claimants. Consumers become disoriented trying to keep track of all the programs to which they have subscribed.

Document review process

On the blockchain, every point of interaction with plan papers can be tracked. The action of a reviewer accessing a plan document is logged and time-stamped. Updates are considerably more likely to take place without losing track of which version of the document is being worked on. Everyone involved in the creation of the plan document can be held accountable. Counterparties with blockchain access can evaluate plan documents for peace of mind. Owners of data blocks can also provide authorization for individual segments to be accessed. The digital aspect of blockchain has the potential to greatly increase the process' efficiency. Through their individual email addresses, all parties can approve the final version.

Attracting the younger crowd 

In comparison to past generations, the younger generation has (incorrectly) developed a reputation for being entitled and unconcerned about their financial fate. However, research suggests that this isn't always the case and that using technology is one approach to pique their interest in pensions. Indeed, one study cites the pension industry's lack of digital innovation and lackluster communication as a contributing issue. Blockchain incorporates technology into pensions, making them more accessible to millennials, who are driving the Bitcoin economy, with 20% of affluent millennials in the UK investing in cryptocurrency.

Addressing the pension gap

Rather than attempting to influence individual saving behaviors, blockchain focuses on infrastructure improvement in order to increase aggregate pension participation. A blockchain-based pension ecosystem can help recipients save time and money by streamlining the entire process while also ensuring data security and transparency.NestEgg is an excellent example of a blockchain-based pension solution that encourages saving and participation. Users have the option of investing in renewable energy technologies such as solar panels and wind turbines. The money they make can be invested toward expanding their ownership and furthering the development of such technology, which will help them save money on their energy bills when they retire. Crowdfunding is used to make investments, establishing a sense of community.

Challenges of Blockchain Implementation in the Pension Industry 

It would be delusional to claim that blockchain challenges do not pose significant barriers to adoption. However, in general, many of blockchain's biggest challenges are typical of any new technology's growing pains. Blockchain advocates will need to persuade their organizations to take the kinds of risks, form the relations, and make the kinds of tradeoffs that are common in other areas of business in order to make the business case for adoption. Below mentioned are some challenges the pension industry might face with the implementation of blockchain :

Cost

Technology isn't inexpensive. Blockchain implementation, especially on a large scale, necessitates a major investment from enterprises. Individual pension funds and businesses acting alone would be insufficient to provide a robust blockchain pension system. To adequately fund blockchain technology, the pension industry would have to look into consortia. R3, for example, needs the support of over 200 global financial services organizations in order to establish its blockchain-based pension system.

Adoption

All parties would have to be persuaded that blockchain is a viable investment. Data on retirement accounts must be modernized across commercial and public enterprises, with employees who are not digitally aware learning how to use blockchain. To cover individual retirement account rollover data, the big banks must participate. To avoid being intimidated by blockchain technology, consumers must be offered user-friendly apps to interact with it. These tools would also have to be comprehensive, encompassing all parties' contributions as well as other important pension data.

Conclusion 

Pensions are enormous quantities of money that necessitate a great deal of oversight, management, and involvement. Blockchain is already demonstrating how it will address the world's most difficult challenges. Stakeholders in the pension system can finally come closer together and align their interests with greater transparency and cheaper costs that come with more easy ways to address fund management. The pension industry stands to benefit greatly from the use of blockchain technology. The benefits are revolutionary, ranging from increased security and efficiency to increased youth engagement and trust through transparency. However, these tremendous positive improvements would necessitate a similarly massive commitment from the entire industry.