A pension crisis is brewing across the globe and the problem is only getting worse. In America alone, many states do not have enough money to pay benefits promised to government workers. According to a recent report from The Pew Charitable Trusts, the shortfall across U.S. states grew by $295 billion between 2015 and 2016. In total, state pension plans had just $2.6 trillion to cover a cumulative liability of $4 trillion.
And the pension crisis is not just affecting America. The UK now has an estimated $4 trillion retirement savings shortfall, which has been projected by experts to rise 4% each year and reach $33 trillion by 2050. Other populous countries like China are also being hit hard, seeing pension expenses rise 11.6% to 2.58 trillion Yuan in 2016. The government was left with a 429.1 billion Yuan expense to cover the shortfall, according to data from the finance ministry. Meanwhile, the World Economic Forum predicts that the pensions deficit will reach $400 trillion by 2050.
Anastasia Andrianova, a former Lehman Brothers private equity investor and Founder and CEO of Akropolis, has watched the pension crisis unfold firsthand. Not only has Andrianova been involved in the finance industry for years, but her Eastern European roots have allowed her to see what happens during times of economic difficulties.
“ When an economic crisis occurs, the first thing that a state will do is tap into pension funds or reserves. Both public and private funds are raided. I’ve seen this happen firsthand, which was further reinforced by the global financial crisis of 2007. The fast points of attack are typically pension services. Pension payouts are cut first. This affects people the worse,” Andrianova told me.
Blockchain Can Fix Broken Pension Sector
Following Andrianova’s time working with several pension funds, she started to notice several pain points impacting the pension system. Andrianova recently wrote on Global Banking and Finance Review,
The pensions system is simply no longer functional. Cost inefficiencies are decimating savers’ pots, mismanagement is rife, and programs are mired in complexity. Meanwhile, retirements are getting longer and more expensive as life expectancy rises. Individuals who have contributed to funds for decades are stuck in schemes which may not deliver their pensions. Meanwhile, alienated younger generations struggling with soaring rents and property prices aren’t saving enough for the future.
According to Andrianova, a lack of transparency is at the heart of the many problems facing current pension systems. One of the main benefits of blockchain technology is its ability to provide increased transparency and efficiency. Taking a firm belief that the current pension system is too far-gone, Andrianova founded her company, Akropolis, last year.
Currently, Akropolis is working on building a protocol to provide a blockchain-based infrastructure to decentralize pensions. The platform aims to gather fund managers, institutional users, individual users and developers under a single ecosystem to provide increased transparency for pension funds. This would also cut out the middlemen that could potentially take value out of pension investments.
“I wanted to come up with a solution that would provide for decentralized custody, an auditable track record that is accessible to relevant stakeholders and a single immutable source of truth. Naturally, this lead us to explore blockchain technology,” explained Andrianova.
Furthermore, taking a blockchain based approach to the pension system also means that no single entity is in control of the ledger, ensuring that transparency can be built-in at the protocol level. And once data is inputted it can’t be erased, helping with the integrity of pensions.
Yet more importantly, Andrianova also understands that a blockchain-based pensions ecosystem could also utilize smart contracts to ensure exclusive delivery of funds to beneficiaries. This will eliminate the risk of fund seizures and hidden costs.
“We are building a platform that users can trust, where no single party can take their money away. It’s as basic as that. I am not sure too many people are aware of this, but even in the U.S. pension fund raids have become a massive issue,” Andrianova noted.
Preventing A Pension Crisis?
While Andrianova truly believes that blockchain technology can help solve many of the problems facing today’s pension systems, she remains aware that a blockchain-based solution will not inevitably prevent a crisis from occurring. However, she is confident that building a new solution from the ground up will help solve many of the pain points facing pension systems.
The coming pension crisis is so acute – it’s inevitable and massive in size. In our case, blockchain is being used to solve a problem needing innate security and a single source of truth. I am not saying blockchain will solve all the future problems, but it is a tool that will help address the current pain points. Decentralized pensions on the blockchain are, without a doubt, the best route to a safer financial future worldwide.