At companies and institutions around the world, pensions are collapsing and vulnerable consumers are paying the price. Lloyds Banking Group, for example, is in the midst of a multi-million dollar lawsuit that alleges that women received fewer benefits than their male counterparts. At the same time, Future Income Payments, a private pension fund based in the US, shut its doors after their operation proved to be little more than a Ponzi scheme that preyed on retirees. Below Lawyer Monthly hears from Anastasia Andrianova, ex Lehman Brothers and now CEO and Founder of Akropolis, on the impending severity of pension reform.
On the current state of private pensions, The Wall Street Journal reports: “The blow-up shines a light on the boom in opaque private markets, to which investors have flocked in the hope of doing better than they can in traditional stock and bond markets.”
The timing couldn’t be worse. Aging populations and a broad lack of retirement saving are stressing retirement infrastructures like never before. According to CNBC, half of Americans don’t have any retirement savings, and the Economy Policy Institute concludes that 401K style retirement plans have failed most workers as an investment vehicle for retirement.
While glaring budget deficits and chronic underfunding contribute to this global crisis, the current fiscal pipeline for pensions is too often ripped to shreds by inefficiencies, inaccessibility, and in some cases outright fraud. It is so dysfunctional, in fact, that fixes to the current system are no longer viable. Instead, the pension crisis can only be solved by a complete overhaul. As with many other decaying industries, that overhaul is arriving in the form of the blockchain.
Blockchain Basics
Originally built as the record-keeping system supporting and recording Bitcoin tokens and transactions, distributed ledger technology is finding new applications in everything from agriculture to payments. A blockchain, aptly named, takes shape by grouping verified transactions into “blocks" and linking those together, much like a chain.
By tying these transactional groups to one another, a blockchain ledger provides heightened data integrity, regardless of the application. To alter one block, every prior block would have to also be falsified, requiring near-impossible levels of computing power. Thus, data entered into this system retains its validity to a previously-unattainable degree.
Maximizing Efficiency
The essence of the blockchain lies significantly in its streamlined approach to data input and storage protocols. Rather than relying on convoluted, multi-tiered storage in centralized repositories,
Improving Accessibility
In addition to the root-level deficiencies in the current pension system’s operating principles, it is shockingly unclear and opaque in conduct, with Andy Haldane, the chief economist of the Bank of England, admitting that he doesn’t understand either workplace or High Street pensions. Clearly, then, there is significant need for a new system. Offenses like discrimination and mismanagement are made currently possible by this demonstrably opaque nature of the current solutions, but the blockchain specializes in transparency, and can renew confidence in a wilting industry. Even in perfectly anonymous platforms, the ledger provides a clear and easily searchable database of transactions. With no extra interference, consumers on a blockchain pensions system could access previous changes to their accounts with total reliability and clarity.
Eliminating Fraud and Looking Forward
By far the most impactful element of the blockchain in a pension application is its fraud elimination potential. As discussed earlier, the construction protocol for each link in the chain unbreakably ties it to surrounding blocks, thereby making post-entry alteration by dishonest means almost impossible. Only approved rights-holders, then, would be allowed access (by private key) to their data.
By addressing the 3 most pressing issues plaguing the pensions systems in place today, a totally novel rebuild with blockchain as the operating framework provides the best path forward. On a global scale, such an application would provide scalable traceability and accessibility of funds, solving the cash sinkhole that is fraud. Consumers also benefit from increased autonomy and accessibility of data, with a clearer path to discovery and dramatically improved authenticity.
