Regulators and policymakers need to know where AI is being used across the pensions industry as adoption accelerates.
The pension provider Penfold says the industry needs improved visibility as to how various AI tools are being used to ensure there is both clear accountability and appropriate controls in place.
Its call for better governance comes as a recent survey from the Society of Pension Professionals found that 100 per cent of schemes served reported using AI. This is up from 87 per cent in 2015.
The Pensions Regulator has also recently published its first AI plan for the industry, setting out how it expects schemes should approach issues around governance, transparency, cybersecurity and safeguards for members in regards to AI tools.
At present AI is being used by the industry in a variety of ways, including administration, communication, analytics, fraud detection or document processing.
Penfold CEO Chris Eastwood says: “AI has potential to improve how pension schemes operate and communicate with members. But realising that potential requires providers to stay in control: understanding where AI is being used, how its outputs are being assessed, and who is accountable when something goes wrong.
“AI isn’t always introduced through a standalone system developed by the scheme itself. Increasingly, it can be embedded within third-party administration, consultancy and communications platforms, making it harder to understand exactly where and how AI is being used.
“Therefore, pension schemes and providers need to be asking the core questions. Where is AI being used across their network, what member data is being accessed, what controls are in place, and how are AI-generated outputs being assessed? Outsourcing the use of AI does not remove an organisation’s responsibility for appropriate governance and oversight.
“AI can support fraud detection and operational processes across schemes, but its growing use also brings new risks, including AI-generated impersonation and fraud, as well as the inappropriate use of member data.”
He adds: “Schemes shouldn’t avoid AI – the opportunity is significant. But adoption needs to go hand in hand with proper oversight.
He says schemes should start with the following framework for governance:
- Identify where AI is being used across the scheme and by service providers
- Put an accountability framework in place to define who is responsible for approving and challenging AI
- Assess what member and scheme data AI systems can access, process or retain
- Conduct an audit of AI suppliers by asking administrators and technology providers for their AI governance and testing processes
- Identify which AI-generated outputs could materially affect members and establish where human review or intervention is required
- Set up consistent monitoring of AI usage