Why Pensions Need a Blockchain Makeover

Getting a blockchain makeover seems to be the way to go for struggling industries and companies these days.

After all, why not?

Blockchain and cryptocurrencies are continuing to gain wider acceptance. Money is still flowing into the industry from all angles.

Initial coin offerings (ICOs) have already attracted over $9 billion in funding so far in 2018.

Businesses Are Jumping onto the Blockchain Bandwagon

Jumping onto the blockchain bandwagon could be the jolt needed for some businesses. For example, Kodak used to be the giant in photography until digital completely disrupted its business model.

But in fact, the company recently made headlines due to its move into the crypto space. Its bid for relevance comes in the form of a blockchain-based digital rights platform for photographers as the company hopes to solve the rampant intellectual property theft in the industry.

Another industry that desperately needs such a makeover is pensions. Pensions have traditionally been the common way for employees to build that nest egg for retirement. But recently, the industry has been under threat. Funds are facing insolvency as the gap between their assets and their payables widens. Worldwide, this gap is on track to reach $400 trillion by 2050.

The Growing Issue with Pensions

The key people and institutions in the space aren’t helping the industry’s plight. A number of employers, funds, and fund managers have been embroiled in corruption and scandals. For instance, failed UK-based multinational firm Carillion owes its pension fund £500 million.

Aside from getting laid off, its workers now face an uncertain future as their retirement funds have been cleaned out by their employer. In the US, the situation seems even bleaker. Pension funds are already undercapitalized with some projections warning that collapse could come in as little as 5 years.

There are other factors affecting the sustainability of pensions. These include longer life expectancies and the decreasing participation of younger workers due to their preference for unconventional work arrangements that deny them of access to pensions. But clearly, the performance and integrity of companies and pension funds are key issues that must be addressed.

How Can Blockchain Help?

Blockchain technology has been lauded as a reliable means to provide immutable and transparent record keeping while encouraging accountability in those that adopt the technology. It has already found a wide number of applications in fields such as finance, identity, healthcare, and government records.

Blockchain startup Akropolis has taken on the challenge of being a pioneer in giving pensions the blockchain treatment. Akropolis seeks to provide a platform that establishes a culture of trust and transparency among all pensions stakeholders.

The platform serves as a decentralized marketplace for users where they will be able to shop around for various pension products. Many workers today, particularly those working as entrepreneurs and as freelancers, find pensions inaccessible. Depending on their territory of practice, these workers may not be considered traditional employees and have to provide benefits like pensions for themselves. Unfortunately, many end up forgoing pensions altogether because they can’t be bothered to handle the additional work involved in signing up for a pension fund.

Through Akropolis, workers can simply sign up and join their chosen pension funds. Since the platform uses blockchain to record transactions, they will be able to check their accounts including the status of their contributions and the performance of their funds.

This is a welcome change to the current ways of doing things. Most members rarely keep track of how their pension funds are being invested and used. They may only find out information regarding their pensions when something bad has already happened. But with this new mechanism, they can be vigilant with how funds and fund managers handle their money.

Akropolis ensures that only valid institutional entities can participate. Funds and fund managers go through a vetting process to ensure their legitimacy. The platform also uses a ranking and reputation system that encourages them to fulfill members’ expectations of sustainability and performance. They have to prove and maintain their integrity as custodians for members’ contributions.

Tokenization of Pensions Could Be in Our Future

Another way blockchain can be used to change the pensions landscape is through tokenization. By using cryptocurrencies and tokens, fund assets can easily be tracked and traced. Users and fund managers will also be able to include cryptocurrencies in their portfolios.

Akropolis also uses two crypto tokens to facilitate transactions on the platform. The Akropolis external Token (AKT) is used to access the platform, purchase premium services, and stake in incentive mechanisms. The Akropolis Internal Token (AIT) acts as a stable coin to digitally represent funds. It is also used as a key tool in providing transparent bookkeeping on the platform and can be traded for both crypto and fiat assets.

The key advantage of using blockchain and tokens is that everything becomes easily auditable. Most instances of malfeasance stem from the lack of transparency in funds’ records. The token economy also incentivizes vigilance in the part of users. Whistleblowers who report abuse of funds by fund managers may be rewarded.

Blockchain is capable of providing these mechanisms that bring the security that pension members need. This way, users can rest assured that their contributions will remain intact for their retirement. Bad behavior can be thwarted since it will be quite easy to expose any dubious or shady activity.

By allowing funds and fund managers to be held accountable, blockchain-based platforms can help compel these institutions to only act in the best interest of members. Solving the pervasive issue of trust in pensions could only help bring stability and sustainability in the floundering space.

A blockchain makeover could make pensions much more widely accessible by completely revolutionizing the way retirement planning is carried out.