Full disclosure: this article was written by me not Artificial Intelligence (AI). We have all read by now how AI is making its way into various aspects of people’s lives. For example, more than half of undergraduates say they consult artificial intelligence programmes to help with their essays, according to a recent survey by the Higher Education Policy Institute. But I have decided to do this the human way: to do the research, formulate, create and write this up myself.
Let’s first consider, what is AI? Computer programmes have been around for many years, using algorithms and models to ‘compute’ and solve complex mathematical and other problems quicker than humans can do. AI models are not magic, they are really just extremely large mathematical models that deal with more complex and unstructured data, such as text and images. Because these mathematical models are so huge they have some emergent properties of human knowledge. Another term used is ‘machine learning.’ As the computer takes data, interrogates it and identifies patterns, it can learn from this process. If you combine all of this with modelling and an ’optimiser algorithm,’ this creates what is now known as AI.
So, this all sounds like technology evolving, but what does AI mean for pensions?
There is a financial advice and guidance gap in the UK that is huge with around 25m consumers unable to access or afford it. If we think about the majority of DC pension savers in the UK now who have been auto enrolled into the system, they may have very individual situations but are unable to readily access guidance to make better financial decisions. The pensions industry has endeavoured to tackle communication and education over decades now. Making personalised guidance available to all pension scheme members cost effectively is a very real challenge for providers, multi-employer DC master trusts and large own trust DC
scheme trustees.
But utilising AI could be a revolutionary solution to this perennial problem.
If we consider how AI works, it is in essence really good at interrogating large quantities of complex data quickly and it can also respond in a ‘conversational’ way. If we consider the data sources for pensions, it does feel like a really good match for deploying AI, given that DC pensions are ‘rule based.’ For example, there are rules on contribution limits, how benefits can be taken, scheme-specific rules and so on. In addition AI can take into account other information such as member interaction and conversation data, scheme guides, scripts etc. But utilising all of these we can create a ‘white box’ of data specific to DC pensions. This is different to AI models like ChatGPT that source data from across the entire internet.
Conversational AI can be deployed to deliver support and guidance for members at key moments, be it taking benefits, personalised nudging, processing transfers, fraud and scam detection.
There are of course challenges with using AI. Data sources need to be correct, conversational AI can ‘hallucinate’ and inherent bias can emerge. The development of expert conversational AI for pensions will have to demonstrate there is strong risk management and moderation built in, for safety and accuracy. The governance structure of pension schemes provides an additional level of safety and ongoing fiduciary oversight, unlike most other areas in the economy where AI is being deployed.
The FCA welcomes the government’s call for the UK to be the global hub of AI regulation. Their outcomes and principles-based approach to the regulation, including the senior managers’ regime and Consumer Duty, should mean that firms have scope to innovate while protecting consumers and market integrity.
For me, the prospect of at last being able to offer all pension savers the ability to get their own personal questions answered feels like the revolution we need. There has not been an engagement and guidance service that is affordable or scalable that can answer the range of questions that members need help with. This includes basic, but really important questions that members frequently ask such as: “I can’t afford to pay into my pension just now, can I stop”?, “I am on universal credit, should I take money out of my pension as I need the money?”or “How do I transfer my old pensions to my new one?”
AI feels like it’s about to revolutionise pensions.