Lessons from micropensions Part 2

Door Robert Timmer - 14 april 2016


In our first blog on micropensions we informed you about the Why of micropensions. As part of our mission to create full inclusion pension systems,  we share knowledge on how to overcome the challenges when setting up a micropension scheme and what lessons can be learned from this development in the developed pension markets such as the Netherlands or the United Kingdom. 


What if there is no trusted ID?

Setting up a pension scheme requires trustworthy information regarding identity, age and other demographic information. Not having this information available creates quite a few obstacles, ranging from identifying clients to determining premiums, in setting up a pension scheme.
For organizations wanting to set up a micropension scheme for people in the informal economy, not being able to identify a client is a “normal” challenge.
In the developed pension market we currently do not see the need for biometric identification. The developed pension markets mostly have access to trustworthy authentication options such a central databases where ID information can be obtained and used to identify a client. These databases are mostly correct because there is limited amount of workers that are not registered.
Although a central ID database sounds very nice, it also has limitations and from a cost perspective can become outdated with the increasing availability of alternative authentication options for example through mobile phones.


The challenge for micropensions

One of the characteristics of the informal economy is that people are not registered and information about demographics is mostly not available. In general people in the informal economy do not have an ID, know their date of birth, age or sometimes even exact location of birth. More recently in setting up the pension fund in Ghana we ran into the issue that people where not able to spell their name and that our pension managers could not understand the dialect of the clients therefore missing out on a opportunity to register a new client.
But even when clients do have information about age are available, a lot of people still dot not have an ID from the government as to obtain comes with a lot of cost. Also because of large migration movements and the lack of postal addresses through the entire country, a client is easily lost from our side.
For pensions not being able to authenticate and verification a client’s ID, this blocks every effort in setting up a pension scheme. Information about the client is essential to make sure you inform and pay out to the person that also saved the money


A solution through innovations

In many developing countries the issue of non-registration is not just an issue for pensions. Whenever there are elections, for tax purposes the information is limited to the people that are registered and these are mostly formal workers. To solve this issue biometric identification is embraced. Voting for elections, vaccination programs, tax purposes authentication is done with biometrics/a fingerprint.
In a lot of developing countries identification by biometrics is steadily becoming the standard. As the use of biometrics raises security of the biometric identification is becoming a top priority.
Innovative technology can solve these obstacles for micropensions. In our case we mostly use biometric identification solutions to authenticate a client ID. Biometric solutions resolve more obstacles than just authentication. It is also the solution to track clients when they move,  which is pretty common in Africa. Technology such as biometric identification is widely available because of the integration in the current generation of mobile phones. Large companies such as Visa and MasterCard are also looking into the options of biometric identification for example making payments by facial recognition. At the other spectrum Microsoft is working on technology that will be able to determine the true age of a person base on biometric characteristics.  


Government the sole owner of trusted identification?

With the rise of identification options, it can be questioned if a government is the sole provider of trusted identification solutions. A person with a mobile phone with biometric idetnifcation functionality is able to positively identification him/herself and does not need a government to verify identity.
This technology driven and personal ID can also include other information such as a credit score together creating a very usable ID with lots of options and no need for government identification. Currently a lot of governments have restrains on the use and storage of this personal information. This can be seen in the requirements for that location of the data storage should be in the country where the user lives.
This obstruction blocs innovation but also creates an obstacle for people in the informal economy having access to services that require some sort of identification. 


Where will the innovation come from?

The development of new technological solutions goes at a tremendous speed. These innovations offer great opportunities to develop new products and services and can be really beneficial for people in the informal economy. With globalization, ongoing migration especially these innovations will offer new product development options but will also allow to sustain existing pension schemes.
Where technology advances we see that legislation is staying behind. In the beginning this does not seem to be much of an issue, but for a longer term we could see that existing systems such as pension schemes, are going to be replaced by technological more advanced systems that are personalized to the customers needs. This disruption, especially with a product such as a pension scheme, can have large impact on the economical situation of a client and in a larger extent also a country.
The impact on pensions, for example if there would be an ‘Uber pension’ could be very large. Currently we experience a lot of legislative issues to realize an “Uber pension” but from a technological perspective it can already be done. The pension sector for the developed economies could lead the way by embracing technology and set innovation at the center of the development for new products.