The global pensions industry is in trouble.
Many of the pension funds in developed economies are underfunded and are likely to dry up. Pension funds in developing economies are also mostly insolvent. Economists have forecasted that the global pensions industry will have a funding gap of $400 trillion by 2050 as the gap between the assets of pension funds and their liabilities continue to widen.
This is caused by several factors. Many economies are grappling with the effects of an ageing population. Life expectancy is increasing. More people are retiring while fewer people are being engaged as active participants in the retirement savings pool.
Many people also lack the financial information and technical expertise to make proactive plans towards retirement. The fact that many people are struggling with debt also makes it hard for them to save towards retirement.
In some cases, the funds are just mismanaged. Funds and fund managers may not be as transparent and as upfront with the state of their finances. Often, members are only made aware of issues when news of scandal or collapse breaks out. By then, there’s little they could do.
In the midst of all this, blockchain startup Akropolis, aims to leverage blockchain technology to solve the pension industry’s problems.
The idea is to create a decentralized marketplace for pension products and as a gateway that brings together funds and fund managers. The venture is set to provide workers with an alternative access to pensions using a decentralized blockchain-based platform and help people guarantee their financial safety during retirement. In addition, immutable ledgers will allow full transparency and the ability to keep track of financial records.
Helping people keep track of pension pots
Blockchain technology can help people to keep track of their pensions through transparent and immutable ledgers. People rarely stay in a single job throughout their working careers. HR research shows that people tend to keep an average of 11 jobs during their employment history.
In the course of changing jobs and moving from one employer to the other, people tend to create different pots of retirement savings with different pension funds. The centralized and fragmented nature of these funds make it practically impossible to merge and combine retirement savings held with different fund managers.
A research study from Aegon Research revealed that 64% of U.S. workers have multiple pension pots and as much as 22% of those workers have lost touch with at least one them. As people continue to change jobs, there’s an increased chance that they’ll lose sight of some of their pension pots. Aegon head of pensions Kate Smith shares, “Without the bigger picture people might be setting themselves up for a retirement fall without a clear idea of what their savings are worth.”
Akropolis can ensure that employees don’t lose their hard-earned retirement savings just because they changed jobs. Through the platform, users get to manage their accounts directly, audit their transaction histories, and track the performance of their funds in the market.
Providing more transparency and accountability in fund management
The results of another study conducted by The Pew Charitable Trusts affirmed the dire condition of the pensions industry. Many people have suspected that pension funds have been subject to abandonment and mismanagement such that the retirement benefits they owe their members is exponentially more than the assets they own.
The report revealed that the pension funds in some states are grossly underfunded. They could run dry at the first sign of an economic downturn. One of the study’s researcher Greg Mennis shares in an interview, “Even after eight years of economic recovery — eight straight years of stock market gains — the public pension plans are more vulnerable than they’ve ever been to the next recession.”
In instances when the pension fund is underfunded, the managers of the pension funds are usually forced to seek alternatives. An option is often to find ways to raise money to deliver the promised returns made to retirees. For governments, it often means cutting down the budget for other items which could include other social services like education and welfare.
In other instances, the fund managers might be forced to reduce the pension payout benefits. This is most unwelcome to retirees who worked hard for their contributions. This can also demotivate the current workforce actively contributing to pensions as they question the point of pensions.
Akropolis can help protect pension funds from being underfunded. The unprecedented level of transparency that ensures that relevant stakeholders know exactly what is happening in real time can also be used to hold funds and fund managers accountable. The platform features a reputation system that urges funds and fund managers to deliver on their committed returns. Lastly, decentralization can also protect against instances of fund seizure where governments just makes an arbitrary decision to take over pension funds.
All this could help win back the trust that’s been wavering from the current workforce and inspire workers to join pensions again. As more members contribute, the more sustainable pension funds could become.