Smart Ledgers & Collective Defined Contribution Pensions

Veterans of the UK pensions scene often describe a former world in which pensions were organised on a best efforts basis. They tend to lament its passing and view the current situation, in which pensions promises are either hard and immutable, as is the case with UK defined benefit (DB) schemes, or non-existent, as is the case with defined contribution (DC) schemes, unfavourably. However, in recent years, there has been an aspiration to allow greater flexibility and innovation in pension provision, than is allowed by these two extremes.

This is the background to the current drive for collective defined contribution (CDC) pensions. Royal Mail has indicated that it will offer such a scheme to their employees once the legislative and regulatory impediments have been resolved.

CDC schemes may be viewed as completing the current individual DC arrangement in the sense that they will offer post retirement income arrangements. DC is currently no more than a tax-advantaged savings scheme; CDC is an integrated savings and retirement income solution.

This new integrated system of accumulation and decumulation, however, brings with it some new technological challenges. There is a need for an integrated administration and management system. Some aspects of a CDC scheme are rooted in practices arising in the DB world and some in DC, but there are also some which are entirely new, such as risk-sharing among members.

This paper describes the requirements of such a system and proposes some solutions, using distributed ledger and smart contract technologies. We recognise that there is also another dimension to a total system, document management, but see that as an issue of interactivity with some of the excellent systems, such as Parade, which already exist.

The very nature of pensions is one of savings, aggregated and chained together over time for both the individual and the scheme, on and from which, immutable, often conditional, transactions occur. The link to modern technologies is immediate.