Retirement represents a milestone for most adults, but despite the feelings of adventure and excitement that come with leaving the working world, this life stage must first be viewed through a financial lens. The ability to generate income with advancing age is limited, and no one wants to be a burden on their family or the state.
That said, there are Social Security programs and savings vehicles that are designed to help individuals prepare for their retirement years. One of these is the defined-benefit pension plan, which, unfortunately, is increasingly an endangered species.
- Pension plans are on their way out, and many of the ones that remain in place are threatened by insolvency.
- Blockchain technology can reduce the complicated layers of pension management and give pensioners more control over their money.
- By allowing the inclusion of cryptocurrency as a pension portfolio investment, blockchain is creating more accessible retirement plans that appeal to younger people, who are most in need of starting to save for their retirement.
Pensions Are in Trouble
They are a large reason why many can afford to leave their careers and take a well-deserved retirement, but pensions used to be more prominent. The days of working for one company and being rewarded with a guaranteed lifelong pension are over. Although pensions still exist, many of the companies that offer them have struggled to make good on the promises they made to their former employees, given harsh realities in the global economy. Trends such as the onset of automation and rising costs of modern medicine converge to put pressure on the bottom line while extending employers' obligations to former employees.
Many retired people still rely on pensions, and their situation is becoming precarious due to the threats facing major pension funds around the world. Funds tasked with paying out monthly stipends are struggling to make good on their projected return promises, with many of them suffering from a lack of funding as obligations rise. The risks of default are great, not only to retirees but also to the whole economy.
There is a frightening gap between the amount of money in pension funds and their outstanding liabilities to pensioners, and it continues to grow. This deficit means that it’s only a matter of time before companies cannot afford to continue making pension payments, which could lead to a financial crisis that eclipses the Great Recession of 2008. Government pensions are also having difficulties: The U.S. Postal Service, for example, failed to deliver as much as $34 billion to its pension fund from 2012 through 2016.
Unfunded pension liabilities of state and local governments at the end of 2017, according to a 2018 U.S. Federal Reserve report.
The biggest catalysts for this mess are a serious lack of transparency at all stages throughout the pension-managing process and changing legislative agendas. Those with the responsibility to pick a pension plan find it hard to understand where the fund is invested, how it performs, and if it can meet specific organizational needs. Accordingly, it’s nearly impossible to identify a fund that will act in good faith when it comes to timely and consistent payments.
Blockchain to the Rescue
Blockchain, a revolutionary computer-based record-keeping technology that functions as a digital ledger, comes at a crucial time and may represent the savior of pensions everywhere, thanks to the unique ways that it’s being applied by ambitious projects in the fledgling industry.
According to Ana Andria, who, as Anastasia O. Andrianova, founded Akropolis, a blockchain-powered pension infrastructure where she still serves as CEO, the world's pension system is failing for the following reasons:
- Changing world demographics, with fewer young workers supporting more pensioners
- The system’s low mobility, since most pension plans are attached to a specific employer, career, or place of residence
- A lack of transparency and control for pension plan beneficiaries
"We are developing a blockchain protocol that helps solve these problems," says Andria, "by creating a single, transparent global pensions system that increases pension-plan mobility, reduces friction, and incentivizes pension funds to act in consumers’ best interests.”
Indeed, blockchain addresses these challenges by working on a shared decentralized ledger—which helps to align stakeholders in any single system—that provides access to crucial information relevant to all. This is particularly helpful with pensions, for which a simple, ledger-based system would let individuals audit the funds they’re considering. Blockchain also encourages greater accountability, with reporting mechanisms that can permanently punish funds that don’t follow through by inscribing results on the shared ledger.
Akropolis, led by Andria, connects individuals, fund managers, and institutional finance in one greatly improved ecosystem. With an incentivized system for rating funds and financial entities based on their performance and behavior, cryptocurrency motivates the maintenance of a system where all aspects of a pension are out in the open. Accordingly, individuals responsible for picking retirement plans for their employees or themselves can see what a fund is invested in and, more important, how capable it is of building a sustainable financial future while honoring obligations.
Blockchain technology provides greater transparency for and gets rid of excessive intermediaries in the pension-managing process.
Fewer Thumbs in the Pie
Such transparency is fundamental for a successful pension system. One of the most troublesome issues with pension infrastructure is that it’s overburdened with stakeholders. There are too many thumbs in the pie.
Besides pensioners, there are account and fund managers, pension plan representatives, corporate boards and trustees, and others who have something to gain from influencing the process. Though they may not intentionally be sabotaging retirees’ variety of plan choices, they affect the results while the direct beneficiaries of pensions exercise little control. The blockchain ledger will eliminate unnecessary intermediaries and provide transparency, greater choice, and direct responsibility for pensioners to pick the investments that are best for them—and them only.
Exciting Millennials with Cryptocurrency
Blockchain can solve another problem as well. Efforts by working individuals to save for retirement have been waning, largely due to stagnant wages, rising inflation, and debt levels. Millennials are neglecting to look over the financial horizon for fear of what they’ll see, but blockchain adds optimism to the picture.
With trends showing that less than 66% of millennials have saved anything for their eventual retirement, the future looks grim. However, blockchain is creating more-accessible retirement plans that include cryptocurrency investments in addition to traditional financial assets. These appeal to a younger crowd that is in urgent need of starting to save for retirement.
The Bottom Line
Pensions are colossal sums of money that require immense supervision, management, and input. Blockchain is already showing the world how it will solve their most enduring problems. With greater transparency and the lower costs that come with more convenient ways to address fund management, stakeholders in the pension system can finally move closer together and align their interests.