Retirement is meant to be a time for unwinding, peacefully enjoying life and reaping the rewards of your working life. Unfortunately, it is now widely understood that chronic underfunding of pension schemes and shifting demographics are likely going to leave a huge number of people with far less support in old age than they expect or need. Many economists and pension experts raised the alarm long ago that radical changes are needed to avoid catastrophe – but what is being done? What are our options if we wish to take matters into our own hands?
It may come as a surprise to some, but many major pension funds in some of the world’s most ‘successful’ nations are hugely underfunded, sometimes nearing up to 50% below what they need to meet their obligations to future retirees! The figures involved are astounding and terrifying when we consider that people who have often worked in stressful and essential roles are facing potential poverty in old age - despite working in ‘safe jobs’ or paying into pension schemes their entire working lives.
Underfunding of major pension schemes has been caused by a combination of inaccurate modelling of ageing populations, unexpected world events and other demographic shifts. We are living longer and at a rate which planners of previous generations didn’t sufficiently anticipate or factor into their calculations when designing retirement programs and the societies which we have to some extent inherited.
Public service pensions have been particularly hard hit, as have any schemes which typically rely on the current generation directly funding the previous generation’s retirement scheme – with no fallback mechanism in place to meet any shortfalls.
As the following graph from the Finnish Centre for Pensions shows, many nations plan to increase their age of retirement in coming years and this trend is projected to continue for at least several decades and the foreseeable future.
Source: Finnish Centre for Pensions
While this strategy eases the strain on pension schemes to some extent, there is clearly only so much that this can be done and it is likely that this alone will not be sufficient to ensure a secure future for millions of future retirees around the world.
China is just as much at risk as Western nations, where an expanding population is resulting in retirement ages being pushed up dramatically. Florida, In the USA, is one of many examples of states there that are underfunded and being forced to consider major cutbacks in public services.This is a problem that seemingly affects us all, almost regardless of our location or background. Unless we are fortunate enough to already be fabulously wealthy, the chances are that we will be experiencing the negative consequences of the pension crisis in our lifetimes – perhaps sooner rather than later!
As the graph below shows, Internationally, the gap in pension funding has been predicted to continue increasing by 5% annually, with total global underfunding set to reach around $400 Trillion by 2050! As with so many potential global catastrophes, clearly we need to take radical action sooner rather than later.
Source: World Economic Forum
For all of the complexity, there really are only several possible solutions to this massive challenge. Governments typically face a very small range of options that they often seem to want to avoid taking due to their unpopularity with voters.
As John Maulden, President of Maulden Economics recently wrote:
“A more conservative and realistic approach would force the state and local governments to fund those pension plans at a much higher level. They have only two ways to do that: either raise taxes or reduce services… The most common solution to this problem so far has been cutting services in the hope no one notices. That may be the reason policymakers have turned a blind eye to this.”
So we are faced with waiting for governments to take action on a problem that they were involved with causing and which they have strong motivation to try to ignore. Understandably, this is a major cause for concern for those who can now expect an uncertain retirement! Fortunately, other options exist which allow individuals to take the situation into their own hands.
Of course, there’s always the ‘nuclear’ option of total system reset, where entire economies collapse and we are forced to devise entirely new ways of living – yet, while this may appeal to some, the majority will now doubt recognise the value in transforming the current economic support systems, rather than relying on their total destruction!
Rather than simply trust our future to governmental oversight (or a future resembling the Mad Max movies), many pension advisers now recommend withdrawing pension funds in a single lump sum in order to manage self directed investments that may yield greater returns. While this may seem risky to some people who lack the necessary investment experience to feel comfortable fully managing their own retirement fund, numerous specialists are happy to help the process along for a reasonable fee. This kind of solution is a middle ground between self reliance and making wise use of expert advice.
The World Economic Forum’s advice to combat the pension crisis is summarised in the following 4 steps:
Create an easy-to-use savings "dashboard" which pools information about multiple pensions and state benefits in one place.
Use technology to reduce costs and improve product and advice customization.
Pursue deregulation to help systems more easily adapt to the life choices facing 21st century retirees, many of whom are a new breed of healthy seniors still leading active lives.
Press the financial services industry to improve its retirement products and better understand the demand for more flexible offerings that provide greater asset diversification.
When we imagine what this revised model for pensions might look like in practice, it starts to sound intriguingly similar to some of the cryptocurrency and blockchain based ideas that have recently emerged to meet the pension shortfall challenge. While Bitcoin matures and continues to become one of the top 10 asset classes internationally, various projects are exploring ways to use Decentralised Finance (De-Fi) strategies to replace the antiquated legacy systems that are currently struggling under the weight of so many human challenges.
Use of cryptocurrency based systems and investments to improve returns from retirement funds directly ticks all four of the WEF’s steps listed above:
The digital and open nature of cryptocurrency and modern internet projects means that they are well placed to interact with a wide variety of financial products and entities, enabling them combine information in simple to use dashboards. Blockchain based pension holders will be able to easily customise their retirement fund in order to take advantage of whichever investment opportunities are currently generating the best returns – quickly, transparently and reliably.
Decentralised technology inherently provides a degree of deregulation when compared to heavily regulated, centralised solutions/products.
De-Fi and blockchain projects will almost certainly reduce costs and allow greater flexibility and customisation.
The introduction of crypto pension products will also heavily pressure the existing pension industry to catch up or lose out at a rapid pace!
SVCS – Giving To Services Steps Forward
The Digital Pension product that is in currently being developed by the SVCS team is one such possible solution to the pension crisis. SVCS specifically focuses on public service employees, who are likely to be amongst the worst hit by chronic underfunding.
The project was born to meet the needs that the World Economic Forum has highlighted and is on target to deliver them via their Ethereum ERC-20 based token in the near future. Not only does SVCS promise to improve the lives of public service retirees, but also intends to pump money directly back into the public services, in order to better fund current public service solutions too!
To learn more about SVCS, you can explore GivingToServices.com and read through the project’s whitepaper for a more complete picture of the project’s vision and goals. Be sure to sign up to SVCS on their social channels for regular updates and insights too.
SVCS is available for purchase on several cryptocurrency exchanges, so early investors on the look out for huge growth potential can already buy in to SVCS, in advance of the launch of it’s digital pension products.
Disclaimer: This blog is provided for informational purposes only and is not providing or intending to provide financial advice. All readers are advised to do their own research when deciding where to invest and to take independent financial advice from a professional concerning investment decisions.