Could we start tapping into crypto for pensions?

An alternative pension for Swedish citizens

In Sweden, 5 million citizens have indirect exposure to bitcoin (BTC) as an alternative to private savings options on the pension market. In other words, half the Swedish population have indirect ownership of BTC – they're just not aware of it.

The government alternative, AP7, provides Swedish citizens the fund of AP7 Såfa. This is allocated to those who do not wish to invest their pension money themselves. AP7 Såfa owns shares in multiple companies, some of which have invested in BTC themselves. This is where the indirect ownership of BTC comes in.

According to Trijo, AP7 Såfa owns around 0.09% of all shares in electric car company Tesla – which, up until recently, was quite the BTC fanatic.

Regardless, it made headlines earlier this year when it bought 48,000 BTC, which is worth around $3 billion.

As a result, AP7 Såfa owns approximately 43 BTC, which comes to around $2.7 million. That means, when divided by 5 million, AP7 Såfa pension savers own around $0.59 in BTC each.

It’s a similar situation in Norway. It was reported by Coin Telegraph that the Norwegian Government Pension Fund owns around 600 BTC through its investment holdings.

The Global Retirment Crisis

Unfortunately, pensions funds are becoming increasingly at risk. Specifically, there’s a significant gap between the amount of money in pension funds and the outstanding liabilities to pensioners. As this gap continues to grow, companies may soon find themselves in a position where they aren’t able to afford pension payments at all.

This includes government pensions. For instance, the U.S. Postal Service couldn’t deliver $34 billion to its pension fund during 2012-2016.

But why is this happening? According to Ana Andria, Founder and CEO of Akropolis, there’s three main reasons why our traditional pension system is failing.

Firstly, the change in world demographics with fewer young workers supporting more pensioners. Secondly, the system’s low mobility (since many pension plans are attached to a certain employer, career or place). And finally, the lack of control for pension plan beneficiaries.

Could blockchain be the answer to this?

With this grim prospect rapidly becoming a reality, we are already looking to blockchain to solve this crisis. But how?

It’ll primarily be down to blockchain’s decentralized ledger, which anyone can access to check the legitimacy of a transaction. Moreover, transactions cannot be altered once it's part of the ledger – making blockchain both accurate and secure.

So how will this be beneficial for the future of pension schemes?

According to Forbes, the US doesn’t have a national database that keeps track of its workers’ 401(k) plans or pension accounts. Moreover, there isn’t a system where they can roll these over into their new employer’s plan if they change jobs. As a result, their pension account becomes lost and they’re unable to track the funds within it.

The issue with the lack of tracking doesn’t just stop in the US. In the UK, a study found that 24% of respondents reported they had likely lost track of one of their pensions. The study also reported as much as £37 billion was left unclaimed.

Additionally, the Australian Tax Office also estimated that $17.5 billion AUD was left unclaimed in 2017-2018.

Giving control to workers

It is evident that the inability to track retirement funds is a problem. This is where blockchain could potentially step in as a solution.

It could solve this issue by allowing workers to keep track of their retirement accounts, including former employer 401(k) contribution accounts and IRAs. Therefore, with proper access to this information, workers would be more likely to make smarter saving and investment decisions.

In a traditional system, workers create separate identity profiles for every pension scheme they sign up to. This quickly becomes confusing, and so losing track of pension funds is inevitable.

With blockchain, they’ll only have to create a single identity profile with verifiable information (e.g., passports and driving licenses). This will give them full control of their digital identity without the need for a third-party service.

However, David Birch, director at Consult Hyperion, argued that a centralised database would function just as well at allowing users to share their digital identity. He also argued that users were more comfortable with third parties regulating their profiles for them, rather than maintaining it themselves.

Regardless, blockchain is still being looked at to rescue the world’s failing pension system. While there’s great potential in giving users control of their own pension accounts, it still ultimately comes down to blockchain’s mass adoption. If widely accepted, it could well be a saving grace for the long-term future of our pensions.