Working hard your entire life is all well and good, but if you aren’t prepared for retirement, you will find life difficult. Traditionally, people would hold down a single job for the majority of their working life, and they would pay into a single steady payment plan. However, due to the nature of the economy and the introduction of technology to the younger generation, more people are changing jobs at a fast rate. This means that with each employer, there is the potential for a different obligatory pension fund. When it comes to retirement, it can be difficult for individuals to keep track of their retirement, and this can lead to unclaimed pots. This is just one of the changes that can be solved by introducing technology to the pension industry, especially blockchain tech. With this in mind, we discuss the current state of pensions and the benefits of blockchain to the pension industry.
The Pension Industry
Going back to before the 00’s, pensions were widely used and stable. However, thanks to the introduction of technology, the mindset of the younger generations, and the state of the economy, pension companies have struggled to deliver on their promises. Staggeringly, the majority of people still rely on their pitiful state pension which, at present, sits at £9,339.20 per year. This low figure is not substantial enough to support retired people alone, and this is why people need to start paying pensions to boost annual retirement payments. Unfortunately, due to the nature of pension investments, the market can crash and leave people with less of their hard-earned cash.
Further to these problems, pension funds are consistently the target of scammers. In 2019, individual pension losses to scams totalled £91,000 on average. Further, in 2020, fraudsters made the most out of COVID-19, and retirement scams were the third most common. These scams deter people’s trust in traditional pension schemes. Luckily, blockchain can help to bring some optimism.
What Is Blockchain?
Blockchain technology is a decentralised system created in 2009 alongside the birth of Bitcoin. It allows for fantastic security and transparency. Typically, blockchain tech is associated with cryptocurrency but has many other real-world applications. Each blockchain system has a ledger that is made up of a series of computers that all work in unison. When a change is made on a blockchain system, it is verified and encrypted before being added to the ledger. Every change is then viewable across the entire blockchain, which makes it difficult to make fraudulent changes.
Blockchain can improve the pension industry by giving control to the people and allowing for a more stable ecosystem. Already, leading pension software providers have assured their customers that they are ready to overhaul their entire system to accommodate blockchain. Currently, pension software providers like Procentia take the pension administration process and make it completely automated – blockchain would only strengthen existing infrastructures. If existing customers know that their money will be safe no matter what happens in the future, they are more likely to invest in a pension.
Blockchain pensions already exist. The most notable example is Pensify – created by Akropolis and run through the Ethereum blockchain. According to their CEO, Anastasia O. Andrianova, Blockchain will help plug the current issues of young workers neglecting pensions, the absence of transparency, and the immovability of pension pots. A global blockchain would put an individual’s assets into one place so that they can easily track and choose where to invest. The next part of this article will explore how blockchain will benefit the pensions industry.
Around 91% of employees in the UK don’t have a clue where their pension is invested. Further, 80% of employees don’t even know how much their pension is worth. In particular, it is the millennials that are the least interested in their pensions. Some of the reasons for this are the general hardship of life and the need for funds in the present, the high transition rate between jobs, COVID-19 inducing more economic hardship, and the availability of considerable amounts of financial information available.
The younger generation is clearly the least interested in their pension, which can make them look like they don’t care. However, they have valid reasons for not paying money into their pensions. Thankfully, a study found that one of the ways to motivate them is through the use of technology. Currently, the pensions industry hasn’t moved forward to account for the interests of the young. Blockchain technology would solve this issue. After all, it is the millennials that are fuelling the cryptocurrency revolution.
One of the most significant problems posed to the current pension infrastructure is the number of stakeholders involved. There are too many people with their fingers in the pot. As well as the retiree, there are plan representatives, account managers, trustees, and a host of other players all hoping to gain from the pension industry.
If there were to be a switch to the blockchain infrastructure, the need for invested stakeholders would be completely eliminated. The end-user would have complete control of their own assets and the ability to decide themselves where to invest their finances. Their money wouldn’t be held up in investments that are set to benefit the corporations while leaving them with the scraps.
In the UK alone, there are around £19.4 billion in unclaimed pensions. The reason for the high number of pension losses comes down to the amount that people are changing employers. Pensions are tied to companies, and it can be challenging to track down all pensions held over a lifetime.
When people are young, they aren’t concerned with losing track of their pension. However, as they age and realise they’ve no idea where their pension is, it becomes a real issue. Thankfully, there are already blockchain-based solutions that help people to track down their pensions; R3 is a great example of this. Their blockchain solution means that people only need to create one profile. When they sign up, they verify their account using official documentation, which is typically used when signing up for pension schemes. Then, the software will search for all existing pensions and put them into one place. As well as pulling pensions together, the end-user is in complete control of their data. They can log in at any time and opt to remove specific data from being shared. These changes would be visible in the ledger, which means that there can be no disputes down the line.
The pension industry runs a system that is outdated and suited to the pre-00s world where people worked on jobs throughout their entire lifetime. Now, people change jobs often, and businesses can’t afford to keep their promises – which has shattered consumer trust. On top of this, the economic climate means that millennials especially need to keep hold of their assets in the present. Thankfully, blockchain technology can offer a lifeline to the pension industry. The security, transparency, and end-user manageability of blockchain would take power away from the large numbers of stakeholders and put it in the hands of the retiree.