The Chinese Pension System
February 12, 2025
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Technology is the elephant in the room as far as pension funds are concerned. There is no meeting or conference where pension funds are discussed but the manner in which technology impacts these pension funds is not discussed.
There are many experts who believe that technology is the future and hence pension funds must prioritize technology over growth in terms of size. Technology has become ubiquitous inside pension funds. Almost every department and organizational unit in these funds are affected by the proliferation of technology.
It is important to understand the various ways in which technology impacts the day-to-day functioning of pension funds. Some of these details have been provided below in this article.
The remarkable ease with which employees can enroll in pension funds encourages a larger number of people to get enrolled in this scheme. The final result is that the investor base for pension funds is being increased drastically due to the deployment of technology.
Technology has made it possible to cheaply produce risk management-related reports in an automated manner. The tools which were once only used by elite fund managers are now available to everybody.
Artificial intelligence and machine learning technology can also be deployed to provide specific inputs to employees who enroll in pension funds. The end result is that employees are able to make well-informed decisions that are likely to have a positive impact on their financial future.
There are many pension funds that have already started deploying these robots on a small scale. It is likely that pension funds will scale up the use of these robots. The scale of algorithmic trading is likely to increase. Hence, pension funds that do not utilize this technology will see their costs increase. This will negatively impact their ability to compete in the larger market.
Blockchain has the power to make transactions cheaper as well as more secure. Since pension funds undertake a lot of transactions, it is likely that this technology will be deployed in order to reduce the overall cost of operations. Blockchain makes it possible to have several copies of the same transaction. Hence, such transactions are very difficult to tamper with or reverse.
Alternatively, data and analytics can be used to explain to the employee the kind of lifestyle they will be able to live after retirement given the size of their contributions. This will encourage the employees to invest more in pension funds and allocate the corpus more aggressively.
There are many fintech firms across the world that are specifically working to create products that help improve the security of the data being managed by pension funds. This helps reduce the amount pension funds have to spend on data security. It also increases the confidence that employees place in the systems deployed by pension funds.
The bottom line is that even though significant technological advances have been made in the field of pension funds, the technology is still at a nascent stage.
Over the next few years, the pension industry is likely to witness significant disruption at the behest of rapidly changing technology. Pension funds that will be able to stay abreast of these technological changes are the only ones that will be able to survive in the long run.
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