Monday, 28 May 2018

Investopedia/Joe Liebkind: Can Blockchain Solve the Global Retirement Crisis?

Can Blockchain Solve the Global Retirement Crisis? By Joe Liebkind | May 22, 2018 — 9:34 AM EDT

Retirement represents a milestone for most adults, but despite the feelings of adventure and excitement that come with leaving the working world, retirement must first be viewed through a financial lens. The ability to generate income in one’s elderly years 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 big vacation.

Pensions are a large reason why many can afford to leave their careers and take a deserving retirement, but they used to be more prominent. Unfortunately, the days of working for one company and being rewarded with a guaranteed lifelong pension are over. Pensions of course still exist for many companies, but many have struggled to make good on the promises to their former employees, given harsh realities in the global economy. Trends like the onset of automation and modern medicine converge to put pressure on the bottom line while extending their obligations to former employees.

What hasn’t changed is the number of people who still rely on pensions. 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.

However, blockchain 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.
Revolutionizing Retirement

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 one witnessed in 2008. Even government offices are having difficulty, such as the US Postal Service, which failed to deliver as much as $34 billion to their pension fund from 2012 to 2016.

The biggest catalysts for this mess are a serious lack of transparency at all stages throughout the 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.

"There are several reasons the world’s pension system is failing. One is that the world’s demographics are changing, with fewer young workers supporting more pensioners. Another is the system’s low mobility, with most pension plans being attached to a specific employer, career or place of residence. A third is a lack of transparency and control for pension plan beneficiaries. We are developing a blockchain protocol that helps solve these problems 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," said Anastasia O. Andrianova, CEO and founder of Akropolis, a blockchain-powered pension infrastructure.

Indeed, blockchain addresses these challenged by working on a shared decentralized ledger, which helps to align stakeholders in any single system, and provides access to crucial information that is relevant to all. In few places is this more applicable than in pensions where a simple ledger-based system would let individuals audit the funds they’re considering. It also encourages greater accountability, with reporting mechanisms able to permanently punish funds that don’t follow through by inscribing results on the shared ledger.

Akropolis, led by Andrianova, 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 importantly, how capable they are of building a sustainable financial future while honoring obligations.

These features are fundamental for the pension system. A model so relevant to one’s ‘quality of later life’ should ideally serve these people directly, yet its exaggerated level of stratification makes it difficult. One of the most troublesome issues with pension infrastructure is that it’s overburdened with stakeholders.

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. Even without intentionally sabotaging retirees’ variety of plan choices, the direct beneficiaries of pensions exercise frighteningly little control. The 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.
Changing Retirement with Cryptocurrency

Blockchain projects must address the crumbling pension infrastructure problem facing current retirees and funds, but it can solve another problem as well. Efforts by working individuals to save for retirement are waning, largely due to stagnant wages, as well as rising inflation and debt levels. Millennials are neglecting to look over the financial horizon out of fear from 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 as well as traditional financial assets, which appeal to a younger crowd.

Pensions are vital on the individual level, and yet are also colossal sums of money that require immense supervision, management, and input. Accordingly, blockchain has come at an opportune time, when discrepancies in the status quo threaten the way of life for millions of working individuals and retirees.

Blockchain is already showing the world how it will solve the most enduring problems in the pension fund industry. 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.
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