Opinion Savings And Investment

AI integration: Transforming the sector and empowering savers

The correct implementation of artificial intelligence could transform the pensions sector, writes Smart Pension's chief investment officer Paul Bucksey.



The lightning-fast adaptability and decision-making of AI has already revolutionised some sectors, and currently stands set to revolutionise a multitude of others. From healthcare to engineering, emerging AI technologies empower us to execute complex tasks in ways that seemed limited to science fiction until very recently. The $62 trillion global pensions industry is one such area ripe for change — one whose main beneficiaries are ordinary savers diligently preparing for their retirement, but whose collective financial heft can move the tide of the global economy.

The UK Government's recent AI initiatives, including the March 2023 AI Regulatory Framework and the world-first AI Safety Summit in November, mark a decisive move to a pro-innovation approach towards AI.

In parallel, the Mansion House reforms announced in the summer underline the UK Government’s commitments to enhancing and modernising the pensions sector, including a pledge by the UK’s largest pension funds to allocate 5 per cent of their investments to private companies and early stage businesses. This will allow SMEs, such as tech and AI startups, access to much-needed liquidity, whilst also allowing pension funds to invest in high-growth businesses.

But for the pensions industry, AI is about far more than just an investment opportunity. As these initiatives gain momentum, the opportunity for British pension funds to leverage the power of AI to transform their own operations and offerings, and therefore lead the future of retirement planning globally, becomes ever more apparent.

Nothing ventured, nothing gained

One of the most promising aspects of AI integration in the pensions sector is its ability to offer pension holders personalised investment portfolios. It may be daunting at first to trust new technology with your pension pot, but data-driven insights can provide a more individualised pension experience.

Consider an individual who wishes to align their investments with their passion for the environment, and to prioritise companies committed to sustainability. Traditionally, choosing the right investments could be a painstaking process, due to the complexity of the landscape. However, machine learning and predictive analytics can reduce speculation, and enable pension funds more effectively to identify investment targets that prioritise the saver's preferences. Such tailored portfolios will give pension holders greater confidence to invest in companies that align with their values.

Certainty in uncertain times

What’s more, the use of predictive analytics and scenario modelling can help expand an individual’s effective pension choices. Take, for instance, a pension holder who is planning to retire early, or pursue their dream of starting a small business. By having predictive AI integrated into their pension platform, they can receive personalised insights into how different financial decisions might impact their retirement goals.

The technology can simulate factors that are out of a saver’s control, whether that’s market conditions or potential business success. Of course, it’s worth acknowledging that the investment industry has long used algorithmic modelling to predict success and shape portfolios; to that extent, “artificial intelligence” existed in the industry long before ChatGPT made the technology a public talking-point. Nonetheless, with AI applications grounded in applied statistics now accelerating in sophistication, a brave new world beckons for the pensions industry.

Trust at the heart of all things

Ultimately, it’s all about pension holders becoming better able to make genuinely informed choices about retirement. That said, we are not ready to hand over all of our retirement planning to the machines. Crucially, the advent of AI doesn’t negate the role of pension scheme trustees, whose fiduciary duties to savers remain steadfast and unchanged.

In fact, retaining a crucial human element is key to ensuring that these new technologies are credible and trustworthy. Otherwise, individuals won’t want to use them and organisations will be reticent to invest in them and deploy them. AI technology must be a tool that supports investment choices, rather than dictates them.

Some may still be unsure about the use of AI in pensions. But there is little doubt that the correct implementation of these technologies could transform the pensions sector, unlocking new choices for both pension holders and funds, and opening up personalisation to those who may otherwise not have that opportunity. Right now, there are reasons to be optimistic, both about AI tech in pensions and the regulatory tailwinds backing its advancement in the UK. We can look forward to a future where AI plays a pivotal role in securing our financial well-being during retirement – hopefully with Britain leading the way.

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