The word “Blockchain” may be a new word for some of you, but rest assured that in the same way as “Brexit” or “Glam-ma”, meaning a glamorous grandmother (honestly) have crept into the Oxford English Dictionary, you will be using the word more and more in future.
The idea may have been around for 20 or so years but came to the fore with the invention of the digital currency, Bitcoin, back in 2008 and has become one of the more talked about changes that could impact on the way that pension schemes are run. It is worth remembering that the internet as we know it today wasn’t around before the mid-1990’s, so Blockchain could evolve in a similar fashion.
Whereas traditional data recording methods have, in the main, involved the saving of individual data in single files (albeit backed up in various sites to allow retrieval in times of loss or hacking), Blockchain changes this completely by combining these digital records into “blocks” which are bound together cryptographically and chronologically into a “chain” using complex mathematical algorithms simultaneously on many different computers. If these computers all agree on the answer, then each block will receive a unique digital signature so that once stored, the data structure cannot be altered, only added to, at which point all using the same network will be able to view the additions.
Fraud would be reduced (eliminated?) as if any of the original data were to be subsequently altered, it would produce a different digital signature, alerting the network to the mismatch. Any hacker would have to get access to every copy of the database simultaneously to be successful.
This new method will enable administrators to rely on accurate data without fear of loss. A further benefit would be that the membership data would be day by day accurate if the relevant authorities also updated the database with deaths, tax changes, leavers etc. The future of this new technology will also mean that no longer will Trustees need to negotiate with a ceding administrator for the transfer of their schemes’ membership data as the incoming administrator will be able to access the same data, given the necessary access.
They would still be the need for administrators and actuaries (thankfully!) but all data, calculations, reports, documentation, presentations etc could be loaded directly on to the system and accessed from there rather than the myriad of systems currently used by the various advisers.
It’s accepted that the new technology may take a while to become universally accepted but once it is, the future for pension schemes may be that much better.