Public Sector pension plans in numerous US states are underfunded to a staggering degree. The overall shortfall is so huge that some commentators have identified risk of a total collapse to entire pension systems! Given the scale of the threat posed by such failure, all solutions are on the table and many are wondering how blockchain technology and cryptocurrencies can help.
The financial reality for many in a post COVID19 world seems insecure and concerning, yet some public sector workers in many parts of the world were living with similar anxiety even before the pandemic began. Despite serving their local people and government in key ways, many teachers, soldiers, healthcare professionals and other public sector staff have faced an ever tightening financial situation for years.
For example, the pension contribution made by public sector workers had risen from around 5% to over 15% between 2001 and 2018, as pension fund planners tried to address chronic underfunding.
There seems to be no way around the reality that when pension funds don’t perform as well as needed or the population’s demographics shift unexpectedly there simply will not be sufficient money to meet the pension fund’s financial obligations. The inevitable outcome is that either services have to be reduced, people laid off, pension ages increased, payments delayed, taxes increased or politicians will be facing the wrath of many angry retirees and voters!
In the case of New Jersey, for example, massive underfunding of public pensions has resulted in the state not only spending less and taxing more, but actually being forced to borrow a massive $4 Billion to attempt to make up for hole in the budget.
“Over the past few months, we have learned hard lessons, but also important lessons: that the old answers won't fix the new problems and that the old status quo didn't work for too many New Jerseyans.”
source: New Jersey Government
$4.7 Billion of the proposed budget for New Jersey is intended to go directly into underfunded pensions, meaning that nearly all of the money given to pensions has simply been borrowed and must be repaid later somehow.
“lawmakers have agreed on a plan to make the largest public pension contribution in the state’s history… Under the plan, the state will make a $4.7 billion payment before the next budget year ends June 30, 2021… rely(ing) on a combination of spending cuts, tax increases, and borrowing to cover a $6 billion state budget shortfall… New Jersey could not postpone or reduce pension contributions without risking collapse of the retirement system.”
With such historically high borrowing, it has been projected that New Jersey may begin to reach full funding for pensions in 2023, however, this clearly comes with significant risk and debt can only plug holes in a broken system for so long.
Illinois, similarly, faces chronic public sector pension underfunding and faces similarly difficult choices in the near future.
“Since it was established in 1939, Illinois officials have not once set aside enough money to fund the pension promises made. As a result, three-quarters of the money the state (or rather the taxpayer) now pays in each year merely covers shortfalls from previous years… Pension shortfalls are common across America, with the average public scheme monitored by the CRR just 72.4% funded. That adds up to a collective shortfall of more than $1.6trn.“
In fact, New Jersey and Illinois were not even ranked as the most underfunded states in a 2018 analysis by The Economist, with some funds in Chicago and Kentucky performing even worse.
Creative Tech Solutions To The Rescue?
The essential theme running through all of these problems is that a large number of people are placing their financial destiny into the hands of a small group who, as it turns out, have not been very effective at managing their money. It is not unreasonable to point out that a radically different approach to solving these financial challenges could produce drastically better results than the traditional solutions have so far.
One exciting opportunity that has captured the imagination of large numbers of people is the rapidly developing world of blockchain technology and the associated cryptocurrencies, such as Bitcoin, Ethereum and many others.
While the early days of blockchain technology were filled with wild tails of vast fortunes being made and lost by many who would have otherwise had little involvement with investments at all – today’s crypto space has evolved into a more mature one that has a great deal to offer all levels of investors.
The best known cryptocurrency, Bitcoin, has mostly remained true to it’s initial goal of providing a reliable store of wealth, having accelerated from a value of almost nothing per ‘coin’ to now over $63,000 per coin in less than 10 years. A wide variety of other coins have also emerged that serve a myriad of other functions, from transparent/efficient advertising to novel solar power trading and on to a wide variety of financial services (commonly referred to as ‘De-Fi’ or ‘Decentralised Finance’).
Clearly, there are huge gains to be made in the world of cryptocurrencies, but are they truly stable enough to provide a reliable basis for investment in the long term, especially when the essential nature of pensions are considered?
Several projects are seeking to revolutionise pensions using blockchain technology and one in particular is aiming to help solve the public sector pension crisis through the use of an Ethereum ERC-20 token known as SVCS. The roadmap for SVCS includes a next generation digital pension product designed specifically to meet the needs of the public sector – with the overall goal of empowering individuals to take control of their retirement funds in ways that can offer a sense of stability and flexibility that has been missing from state orchestrated solutions.
With numerous heavyweight institutional investors, companies and entrepreneurs championing the long term viability of cryptocurrencies, perhaps the idea that blockchains might yield more stability than state sponsored pension programs is not something to be sceptical about. As blockchain technology further matures, there is every possibility that it will replace the more centralised and top-down controlled systems that have shaped the economic world of the past.
The SVCS Vision
SVCS stands alone in aiming to enable the huge growth potential seen in many cryptocurrency projects to be made available to average public service workers in ways that not only serve them, but that also give back directly to current public service workers too.
Amazingly, SVCS intends to not only provide pension features that increase transparency and flexibility for end users but to simultaneously also help to fix the underfunding of state pensions in the process too. So rather than attempt to compete with government solutions, SVCS intends to integrate in alongside existing systems and to intelligently support them in ways that benefit all involved.
More than simply making up for a shortage of vision among state pension fund controllers, SVCS intends to provide innovative tools and investment options that could result in far greater performance than would have been the case by simply investing new pension payments from workers into Bitcoin or other coins directly.
For more information on SVCS, you can read the project’s whitepaper over at givingtoservices.com. The token is already being traded on several exchanges and for an up to date list of them, check out the SVCS page at CoinGecko.
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.