How technology can support pensions for the underserved

PROVIDING pension support for workers in the informal sector has always been a challenge. At a recent Green Shoots session held at Prudential Singapore's office, panellists discussed how the use of technology and digital tokens can help facilitate the distribution of micro pensions, and what challenges remain. Micro pensions refer to small sums of money saved by self-employed individuals, that are then invested to yield returns. The discussion, titled "Towards Longevity: A Spotlight on Digital Wealth and microPensions", was held on Oct 10 and organised by Elevandi, a company established by the Monetary Authority of Singapore to promote financial technology.

Panellists:

• Sopnendu Mohanty, Chief FinTech Officer, Monetary Authority of Singapore
• Tomasz Kurczyk, Chief Information Technology Officer, Prudential Singapore
• Parul Seth Khanna, CoFounder & Director, pinBox Solutions
• George Kesselman, President & Founder, InsurTech Asia Association and Chief Commercial Officer, ZA Tech

Moderator: Michael Waitze, Author at Asia Insurtech Podcast

How do we use technology to create scale and impact for micro pensions?

Kesselman: The process is still evolving, the reality is that because of the nature of how the economy is progressing towards the internet economy and growth in the digital, there is going to be more things that need to be embedded within those interlinked ecosystems. Rather than building a new app that someone has to download or to start a pension and save towards it, it is going to be very much about embedding these services in existing ecosystems, like ride-sharing apps.

The insurance sector is changing from being a standalone industry into something that is much more a part of other original existing ecosystems. That is a big shift that is happening from a technology perspective as well as from a mindset perspective.

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How do we get all the players together so that the underserved, the ones who actually need micro pensions, can get served?

Kurczyk: I think the answer is simple, but the execution, difficult. It all starts with understanding what the customer wants. When you talk about micro pensions especially, we need to put this into context. We are in Singapore, so we have multilayered safety nets. Typically, people have insurance plans, their own savings, and government schemes, to tap on. In countries where these do not exist, they can only fall back on their savings or family. The statistics speak for itself.

In Asia and Africa, the most common reason for personal bankruptcies are medical care and emergencies. In the absence of safety nets, such situations impact the current generation as well as future generations, as it often wipes out accumulated savings and wealth. In Africa, we distribute our products through local ecosystems and networks such as mobile operators.

For example, in Ghana, we partnered a leading provider of mobile-delivered insurance and health services as well as a mobile operator to bring affordable insurance products to customers. It's important to be where the customer is at. This helps to raise awareness and understanding of protection with more people, and support the growth of insurance.

How do you approach it differently in Singapore, which is a wealthy country, and emerging markets in the rest of Southeast Asia and Africa?

Mohanty: In context of emerging markets, there is a saying that goes, "Never provide poor solutions to poor people". When you are dealing with people in the lowincome segment, they have the widest expectation of risk coverage. (Yet) we have the least understanding of how to cover them. The wider the expectation, the higher the likelihood of hitting that risk, and often, the premium prices go exactly in the opposite direction. So how do you price the widest risk? With a low premium to cover the risk? That's the problem.

Khanna: One third of the population in Singapore are gig workers and domestic workers who require micropensions. By 2050, there will be 2 billion people above the age of 60. There shall be more elderly than those below the age of 15. Of these elderly, 1.7 billion will be living in developing countries with no pensions to rely on. This is serious.

Today's youth or the future elderly living in Singapore or India or Africa, all have aspirations and need well-regulated long-term savings and pension products to make sound investments that give secure and meaningful returns. Pension Tech shall ensure all informal sector workers receive the same quality and experience as we do.

Mohanty: For emerging markets, there is an opportunity to restructure the transfer of direct benefits, to allocate a portion of that money to long-term wealth protection, as opposed to only providing government handouts. That makes a use case for central bank digital currencies because we can programme the money so that it can be used for something specific. We call it "programmable money". Most of the time, policymakers respond to financial crises with direct transfers, but there is an opportunity to restructure that response to more targeted benefit transfers.

Is there a way to give people ownership of their own data to make it easier for them to have a whole array of financial services, including micro pensions?

Mohanty: First of all, if all of us are going to be participants in a network, the transfer of value, whether for pension or any financial service, is going to be bilateral with no intermediaries. All of us should be visible and identifiable in the network. Second, we need a currency to power this network because there is incentive for someone to validate that these two people are exchanging ownership and value. Third, you need a new form of money which will power transactions between two parties.

Tokens with verifiable credentials can be used by, say, farmers, to represent an intent to pay, and these tokens become a way to get credit from the bank. These same tokens can also be used to transact with insurers and other stakeholders, and now you have a digital footprint at the lowest level to create a new economic model. With this new design, you'd see a better technology platform to solve a wide range of issues in the financial sector. It reduces the cost of transfers, it increases transparency of the particular participating population, and it drives value to the participants in the network.

What other issues remain, from a production creation standpoint?

Kesselman: From a product creation standpoint, the actual product or insurance that is put together needs to really fit with the problem statement. One challenge is the cost of delivering this product. The other is an issue of trust. Technology solves part of the problem - we can reduce the friction of delivery of the product, we can put it on the phone, but for somebody to trust that there is going to be something there 50 years later, that is a pretty big leap of faith.

Mohanty: On the trust issue, when I give you a dollar bill, as long as I'm holding the dollar bill, it's good enough. A token is like cash. The moment I am holding the token, I don't care who gave it to me, it's legal tender and you will trust me. It's based on the construct of not needing a trust system. In a token world, institutions don't matter because the token would encapsulate value and ownership.

Technology spurs Singaporeans' growing confidence to live to 100

DIGITAL technologies have had a greater positive impact on people's finances than other facets of life, and the majority of Singaporeans have demonstrated proficiency in using mobile banking and financial management apps.

Eighty-five per cent of Singaporeans say they are adept at mobile and online banking, while seven in 10 say they are proficient in using financial management apps, according to a Prudential Singapore study of 800 Singapore residents. This proficiency is seen among younger and older respondents alike.

The research report, titled Digital for 100: Harnessing technology for longer lifespans, was launched at the Green Shoots session.

It noted some age differences in how much importance respondents accorded to the use of financial technology in managing their financial health. Those closest to retirement age, for instance, are more likely than others to value technology in managing their Central Provident Fund (CPF) accounts, whereas those in mid-career (35- to 54-year-olds) place more importance on using financial technology to manage their investment portfolios.

Compared to last year's study, Singaporeans today feel more ready to live to 100 from a financial perspective. Fifty-four per cent say that they are prepared from a financial health perspective, up from 29 per cent in 2021. The study's authors attributed this improvement in outlook "at least partly" to Singapore's strong economic performance in 2020 and 2021, and its success in containing new Covid-19 outbreaks in the past year.

Age is also not a strong differentiator when it comes to using technology to manage health. Lim Sun Sun, professor of communication and technology at the Singapore University of Technology and Design, said the Singapore government's proactive role in encouraging health tech adoption has contributed to the popularity of such technologies across age groups.

However, proficiency does not translate into comfort and ease with technology. Technology-induced anxiety is a source of concern for many citizens surveyed, with four in 10 saying that using digital technologies create more anxiety than enjoyment.

For younger people, anxiety often comes from being overconnected and inundated by a myriad of notifications, Lim suggested. Those in the older age group, on the other hand, may feel stressed from using complex apps, or when devices do not work as people want them to.

That said, the survey has shown that some devices and apps can be complex for people of any age. Fifty-two per cent of respondents in the 55- to 65 year-old age bracket said modern digital technologies are becoming increasingly complex to use, while a larger 55 per cent of those in the 35- to 44-year-old group said the same.

Almost half, or 49 per cent, of the respondents also have concerns over the security of their personal data in their use of digital technologies.

The Monetary Authority of Singapore's Chief Fintech Officer Sopnendu Mohanty called on tech companies and service providers to construct their solutions in the "simplest possible design". He held up peer-to-peer funds transfer service PayNow as a model to emulate for its simplicity.

The report's authors outlined three areas in which citizens can be better equipped to use digital technologies well. First, user-intuitive design will enhance digital inclusivity. Tailoring apps to specific age, physical, or financial profiles can also encourage wider technology adoption. Finally, better training, especially for elderly users, can guard against misinformation and online scams.

Prudential Singapore's Chief Executive Dennis Tan said technology has become a core part of our lives since the pandemic, and service providers should build on this momentum by ensuring that digital technologies are simply designed and user-friendly. "This will encourage individuals to continue using technology to take charge of their health and wealth as they get ready for a longer life," he said.