AI has considerable potential to enhance pension plans’ investment returns and improve retirement outcomes, according to latest Mercer & CFA Institute Global Pension Index report.
The report says while artificial intelligence is nothing new and traditional AI systems have been integral to investment markets since the early 1980s, the development of Generative AI offers a ‘whole new world of potential opportunities as well as risks, challenges and ethical considerations’.
Putting the ‘very real risks and challenges’ aside, the report says AI offers numerous opportunities to enhance the operations of pension plans including:
• Automation of routine and repetitive tasks – increasing accuracy and efficiency while potentially reducing complaints.
• Enhanced risk assessment – allowing more thorough data analyses related to financial fraud, cyberattacks, third-party interactions, employee behaviour, and political developments.
• Improved fraud detection – with the global growth of DC pension schemes, improving the detection of identity fraud becomes increasingly important.
• Behavioural modelling – for example, in response to tax changes, contributions, withdrawals, retirement rates, and changing economic conditions.
• Future planning – helping to identify opportunities and challenges arising from demographic shifts, economic and/or policy change and labour force trends.
• Improve consumer engagement and understanding by helping to standardise and clarify communication across pension systems and, if regulation allows, provide personalised, tailored advice considering each customer’s unique circumstances and preferences.
• Provision of real-time information on demand.
Financial decision making is complex, requiring individuals to fully understand their options based on comprehensive and personalised information. AI could play a pivotal role in improving long-term outcomes in retirement by enhancing member engagement and increasing investment returns within pension plans, the report suggests.
It states: “Developing and implementing effective AI tools will be costly and will require time, transparency, careful policy implementation, rigorous governance and of course, human input and oversight, to realise these benefits fully.
“Any missteps in AI application by the industry could undermine the long-term confidence that pension plans rely on, possibly irreparably. But get this right, the prize for both consumer and company could be enormous.”
