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Addressing the Looming Retirement Crisis With Blockchain Technology

A critical reality for those approaching advanced age is that, on average, they don’t have enough money saved to comfortably retire.

Pensions are supposedly the de facto way for workers to save up for their retirement, yet the global pensions crisis is a ticking time bomb and very little is being done to defuse a potentially catastrophic situation. Pension and retirement funds across the globe are grossly underfunded and, according to the World Economic Forum, the gap between the assets and liabilities of the world’s six largest economies is expected to reach $224 trillion by 2050. 

This means that everyone, including young people, should now be worried about having enough money in old age. Furthermore, life expectancy has also increased by 5.5 years on average within just the past decade. But what this means for retirement is that what was previously considered enough money is now insufficient to cover the additional years a person will live.

However, some blockchain-powered solutions are hoping to address this changing landscape and improve the way that we save for our retirement. 

Examining the Issues

Pension funds and the people running them are partly to blame for creating this crisis. There have been plenty of cases where fund managers have pilfered and mismanaged funds. In the U.K., the collapse of construction firm Carillion has left thousands of workers with uncertain futures as company executives let the workers’ pensions become grossly underfunded. Just recently, a former State Street executive was convicted of defrauding customers of the company’s financial services, which included several European pension funds. 

Current systems lack transparency and accountability, and often members and retirees only find out that their pensions are in jeopardy after the news is brought to the public's attention. 

Workforces are also shifting. Fewer people are opting for traditional forms of employment where they could get access to such employer-provided benefits that typically include pensions. Freelancers and entrepreneurs have to create such benefits on their own, which means they might not manage or deposit funds in conventional ways. For these and many other reasons, funds are actually paying out more to support retirees than the money they take in. 

Looking at these issues, it is possible to see how a technology such as blockchain can be of use. The transparent and immutable record keeping provided by blockchains makes fraud and misappropriation of funds traceable. As a decentralized technology, blockchain platforms also promote democratized access to products and services.

Blockchains for Pensions

The blockchain-based startup Akropolis is among the few initiatives actively working on addressing the pensions crisis. The project seeks to leverage blockchain technology’s strengths to provide solutions to the issues surrounding pensions.

Akropolis provides a marketplace where users can shop around for pension products that best suit their needs. The platform also allows users to manage their own retirement funds. Through blockchain technology, everything becomes readily auditable — unlike with conventional funds where members are rarely updated about fund performance if at all. This way, users will know how their money is doing at any given moment, allowing them to make financial moves to boost their ability to meet their respective retirement goals.

The platform also serves as a gateway connecting pension funds and fund managers. All institutional participants have to go through a vetting process to ensure that only valid entities participate. They are also subject to ranking and reputation mechanisms to determine which ones are performing well and meeting their commitments to users. With the blockchain as the recording ledger, it would be difficult for malicious actors to game or defraud the system. As such, all actors on the platform are encouraged to act in everyone’s best interest.

Alternative Investments

The pensions problem can be a tough issue to solve. Fortunately, blockchain technology is also creating new ways for people to manage money and invest. Aside from the crypto market, blockchains have entered various finance verticals that can be used to complement pensions.

Interested investors can leverage blockchain technology’s ability to allow for fractional ownership of various assets. Slice Market, for instance, provides investors access to prime U.S. real estate investments, recording fractional ownership on a blockchain. By pooling together smaller investments, investors are able to participate even without significant capital and can earn through dividends. They are also provided with increased liquidity as users will be able to readily sell their stakes.

Others with a more adventurous streak can also explore other unconventional investment vehicles. Assets such as exotic cars and fine art can be acquired through projects like BitCar and Maecenas, respectively. 

Retirement Planning Is a Must

Obviously, plenty of due diligence is required when diversifying into other investment vehicles. But most importantly, people need to ramp up their savings and investment efforts to ensure that they live comfortable lives upon retirement.

Workers should take time crafting retirement plans and strategies. If fixed, pension funds could regain their seat as the go-to means for saving for retirement. But it would also serve workers well to explore other verticals, and blockchain technology seems like it could be a solution here.

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