AI is already impacted the way people make pension decisions, and if providers harness its abilities this technology could drive better retirement outcomes.
This was one of the key takeaways from a panel at Corporate Adviser’s Master Trust and GPP conference, looking at advice, targeted support and the growing role of AI in decision-making at retirement. However those on the panel also acknowledged the inherent risks of this technology, particularly when used without “appropriate guardrails”.
But Mercer head of DC client development Adele Ray said that with 70 per cent of people not taking professional advice, the sector needed to look at new ways to help people make what are often complex retirement decisions.
Foster Denovo chief operating officer Helen Lovett agreed, and spoke about the experience of launching My Advice Place, a digital advice solution already in the market. She said one of the biggest advantages AI offers is reducing the administrative cost of providing delivering face-to-face advice, making this a more affordable for a greater number of people. She said this would be an important aspect in a workplace environment where support can be offered through the employer.
She said this indicates that at the moment hybrid models can work, with AI reducing reducing costs for advisers, and the face-to-face interaction meaning people were more likely to act on this guidance.
KPMG partner and head of AI advisory Leanne Allen highlighted the importance of having strong guardrails around AI solutions. She said that there is a risk that is is regarded as advice by those using these services. “The question then is who is held accountable for this advice,” she added
All those on the panel acknowledged the challenges around this, particularly given the sky-high cost of professional indemnity insurance. As Lovett noted AI might reduce future mis-selling claims against advisers, but this insurance is typically priced by looking backwards at problems that have beset the advisory industry not at the future landscape.
Allen agreed that AI had the potential to reduce future problems, although this would depend on how it is used within the industry. She says it could be configured to include important safeguards, such as prompts to nudge members to slow down, or sense check information.
However, Ray pointed out while the industry was understandably nervous about introducing AI solutions, many scheme members were already using open AI systems like Chat GPT to get financial support. “The onus is on us as an industry to provide trusted guidance or advice solutions that use this technology.”
Allen pointed out that AI has significant uses, particularly in its ability to tailor communications and aim this at the level of the user. AI avatars can also be used to deliver information to clients who may struggle with written reports.
Although those on the panel acknowledged the potential impact on jobs across the industry Lovett said the adviser role may become more highly skilled as more routine administration tasks become automated.
Those on the panel agreed that current decumlation solution are not yet meeting the needs of non advised DC-only retirees but said real innovation is expected to flow from the secondary Pension Schemes Bill and more flexible structure blending drawdown, guarantees and collectives.
This will include the emergence of new multi-employer CDC solutions. Ray noted that there appears to be timing issues; with master trusts required to offer default income solutions at least a year before retirement only CDC will get authorisation.
“CDC is definitely coming,” she said. “But widespread changes will not happen overnight.”
There was also discussion about the impact of dashboards, which will show “linear information” about people’s pension holdings. Ray pointed out that for most people their retirement wealth is split between pensions investment and housing wealth. “What people might need is more 4D information about their total assets,” she said. Although she acknowledged this would be an important tool in getting people more engaged about their pensions.
