Could blockchain restore confidence in employer pensions?

The average US worker has no retirement savings, with the median retirement account balance being a worrying US$0.00, according to a recent study.

The report entitled ‘Retirement in America: Out of Reach for Most Americans?’ written by the National Institute on Retirement Security, also revealed that a huge 57% of US workers - the equivalent of 100 million people - had not even set up a retirement account, whether that meant an employer-sponsored 401(k)-type plan, an individual account (IRA) or a pension. Of those that had, a typical individual had accumulated the modest sum of only US $40,000, which is far below what most are likely to require to maintain their current living standards during retirement.

One of the reported issues behind this failure to save for old age was the financial crisis of 2008. Citizens around the world saw the value of their retirement plans plummet when the financial markets crashed, which led to confidence in such investment vehicles tanking.

The asset values of the plans in the US dropped from US$9.3 trillion at the end of 2007 to US$7.2 trillion at the end of 2008, for instance. While the combined value of 401(K)-type accounts and IRAs had hit US$16.9 trillion again by the end of 2017, people with such accounts tend to be at the top end of the income scale, earning three times more than those without.

Most countries around the world, however, do not require employers to offer retirement plans – and even if they did, the lack of international consistency between them often makes things difficult for global companies to manage.

Should some form of plan actually be available, it will not necessarily be a pension scheme either, which consists of guaranteed employer contributions. Although pensions were designed to be a dependable savings option, in many instances today, investment returns are too low to meet individuals’ needs. In some cases, pension schemes may even struggle to meet their obligations in future.

Moreover, if a company suffers financially, its pension plans may be affected, which makes many employers reluctant to offer to them to employees in the first place. The situation is also not helped by the fact that pension systems, payroll and other financial applications are often based on old software that is no longer fit for purpose. But blockchain technology could be of help here.

Blockchain in the retirement savings process

Blockchain is the technology that was used to underpin the Bitcoin cryptocurrency network, which provides a way for people to send and receive funds to each other without having to rely on a middleman.

One of the most important things about the technology is its ability to record and store every transaction that takes place on a decentralised distributed ledger. This makes it nearly impossible to hack and steal transactional data. At the same time, the paper trail around the transaction is accessible and makes the task being undertaken transparent to others. This makes blockchain of great potential use in the retirement savings process.

In today’s financial sector, money can seem to disappear for uncomfortable amounts of time. Most people and businesses have at some point attempted to send or receive money from their bank, only to experience a delay in it arriving at its destination for reasons they are unclear about.

But blockchain is able to transfer digital money in near real-time and ensures that all transactions are recorded for security’s sake. It is this functionality, which helped make Bitcoin such a success - and the same could be true for retirement planning.

All too often, retirement plans fail because the systems that underpin them do not perform as they should. But blockchain could help to restore confidence in the industry. Ensuring that transaction records are publicly accessible could help prevent employers from being taken in by misleading pension performance information, human error or even embezzlement. 

Instead of pursuing pensions saving in the traditional way, blockchain may make it easier for the employers, and the working population, to set and meet their savings goals. For example, the technology eliminates excessive processing fees, guarantees transparency throughout the savings process and offers more privacy.

Once such systems are on the market, they could generate a significant industry shift by granting each customer ownership and control over their assets and savings. The ultimate aim is to create a borderless, competitive marketplace for asset management services that are available to virtually everyone.

  Anastasia Andrianova

Anastasia Andrianova used to work at Lehman Brothers and is now founder and chief executive of blockchain pensions platform, Akropolis. Ana is an experienced investment professional, business builder, technology and data expert. She sits on the advisory board of the Web3 Foundation, is a board advisor and investment committee member of the European Union’s industrial Internet of Things incubator (the OpenMaker Project) and is also a member of the Blockchain Ecosystem Network.