– non-starter or future product?

Our viewpoint

Alex Waite looks at the boom in cryptocurrencies and asks whether they can be applicable for the pensions industry.

Bitcoin has just turned 10 years old. Arguably the world’s best-known cryptocurrency, it has had a roller-coaster ride in that time, hitting highs of US$20,000 for one Bitcoin last year before falling back to around $6,000 on its anniversary. In the process cryptocurrencies have gained staunch advocates and stern critics alike and have, like it or not, become a significant feature within the financial landscape.

Does that mean, though, that they could ever have a serious role to play in pensions provision? Given that Millennials – the generation of Future Pensioners the industry most needs to engage – are the most familiar with the concept, it’s a question that should be addressed.

Volatility vs. stability

Pensions are a long-term investment in which stability and certainty are paramount so as to engender trust and security. Cryptocurrencies are the polar opposite: some would argue a form of gambling in which extreme volatility is part of the attraction and a source of major risk. On the face of it, not a great fit for a retirement pot.

And who’s to say whether Bitcoin or any of the other cryptocurrencies will still be around in 10, 20, 50 years’ time? The technology underpinning cryptocurrency, blockchain, has already been utilized successfully in a number of industries, such as in the retail industry, and food supply chains, however, questions remain around whether or not the cryptocurrencies currently built on blockchain will stay the course.

What about ethical investing?

As we discussed in a recent blog on climate change, the demand for ethical investment strategies is gaining traction and is likely to be a significant growth area for pensions for some time to come, with Millennials key proponents. Ethical investing is the ultimate long-term strategy: designed not just for returns but with the future sustainability of our planet and society in mind. There is also the argument that a sustainable business strategy means a stronger commercial performance over the long time horizon of pension saving.

Turning back to cryptocurrency, how does an ethical ethos fit with allegations that cryptocurrencies are being deployed by criminal gangs to launder money, evade tax, traffick drugs and even fund terrorism?

The immediate environmental impact must also be considered. Although cryptocurrency is virtual, its effect on the environment is very real, with recent research finding that the amount of electricity required to process and verify Bitcoin transactions for one year exceeds the entire annual energy consumption of Ireland.

Get rich quick?

With these issues in mind, cryptocurrencies and ethical investing don’t look compatible right now. Nor is betting on volatile virtual currencies a likely route to long-term financial security for the majority of Future Pensioners. For all the promise of immediate riches, cryptocurrencies have real shortcomings when it comes to saving for retirement. If forced to make that choice, the savvy Future Pensioner will hopefully prioritise long-term ethical concerns and stable returns over short-term crypto-thrills.

After all, recent research from LCP, carried out in conjunction with YouGov, found that only 7% of British adults said blockchain – in the form of an unchangeable digital account log which creates an auditable trail of an individual’s pension and allows them to see what is being saved and how that changes over time – would encourage them to save more for retirement. By far the most popular was an online dashboard, chosen by 21% of respondents. Perhaps that is where efforts to increase engagement should lie.

About the survey

All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 2008 adults. Fieldwork was undertaken between 22nd - 23rd August 2018.  The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

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