(Part 1 — The Challenge)

I hate long silences in the car so, while I was on the road this past month, I did an informal study in every Uber/Lyft/taxi I took. Here were the two questions I posed to the drivers:

How many hours do you work a week, across how many jobs?

How are you preparing for retirement?

I didn’t meet a single driver who was working less than 60 hours a week and working at least two jobs. They worked hard, plain and simple.

The retirement question drove an interesting discussion. The answers varied by country but the top answers were (paraphrased):

I don’t have enough money for my immediate needs, can’t even think about retiring.

I put a little in my savings account when I can but that’s for (short term savings goal)

I’m counting on social security (government pension for citizens)

I’m going to work til I’m dead.

Well, I had bought some BTC in December 2017 but…

Nobody said they had a structured plan for retirement. Two drivers did not have a bank account, let alone a traditional retirement savings account.

We’ve written about the looming pensions crisis but there are special challenges facing the gig economy — people who make a living driving for Uber, freelancing on Upwork, working for themselves. Also known as the “informal economy”, the number of gig workers has grown dramatically over the past decade globally and continues to race ahead. In the US, it’s estimated at 34% of the workforce and growing to 43% by 2020, a trend that bears out globally.

There can be many benefits by earning a gig-based living but these workers commonly don’t have the benefits of:

Employer-based retirement programs (whether savings plans or pensions)

Full participation in government-based pensions (avoiding taxes also avoids earning benefits)

Regular paychecks, which are a core behavioral requirement for regular retirement savings

I’ve recently worked with an NGO that is focused on, among many topics, the challenges of predictable retirement income in Latin America. Their analysis on the root causes of failures and successes in encouraging healthy retirements in LatAm is powerful examination of demographics, behavioral economics and potential solutions.

Let’s take Mexico as an example. When asked about how long they expect to live, Mexicans regularly underestimated by roughly two years. For an individual, this may or may not be a problem. For a large population, a two year gap is massive.

Consider the impact of this perception gap. If you’re not going to be retired for long, there’s less of a need to save for retirement. That bears out in the retirement savings rates for the country:

The informal economy exacerbates the issue. Non-salaried workers in many of the region’s countries are not plugged into the social security system — often because of the design of the social protection system itself. These workers fall into a gap where:

As an individual, they assign a low value to social security and aren’t forced to participate and

As an (self)employer, they have direct incentives to evade formality, which requires payment of taxes

Traditional approaches ask what governments can do to solve the problem. Yet market forces created the informal economy; while public policy can be crafted to drive the creation of more formal jobs and stimulate employer and employee contributions, the gig economy is here to stay.

So the real question is: “How can market forces be harnessed to solve the problem?” Let’s look at the objectives we want to achieve:

Positively affect national savings

Fiscally sustainable for the governments

Encourage worker contributions regardless of whether income is earned in the formal or informal economies

Adapt as demographics and markets change over time

Next week: The Gig Solution

SPECIAL NOTE: Thank you to the Inter-American Development Bank for their extensive research. I highly recommend their eBook “Better Pensions, Better Jobs: Towards Universal Coverage in Latin America and the Caribbean” — See more at: https://publications.iadb.org/handle/11319/462#sthash.ISrfh6R2.dpuf

About Tontine Trust

Tontine Trust Ltd. will be structured as a not-for-profit developer of peer-to-peer retirement savings schemes which can issue internationally regulated low cost retirement savings products including:

● Gold-Standard Tontine Pensions fully backed by RMGs, the new digital assets of The Royal Mint representing ownership of physical gold in the Royal Mint Vaults.

● ETF Tontine Pensions backed by globally diversified portfolios of the largest & most established exchange traded funds.

In addition to being secured on a decentralised platform, our patent pending Robo-Actuary ensures that Pensions are ALWAYS fully funded whilst Tontine members “earn a type of guaranteed “alpha” not available in any other asset class” through longevity risk sharing.

For further information see https://tontinetrust.com

To speak to the Tontine Trust team, please contact:

Email: prosper@tontinetrust.com

Telegram: https://t.me/TontineTrustSupergroup

Twitter: https://twitter.com/TontineTrust