Pensions in the blink of an AI

Blog 22 Feb 2023 By Matthew Masters

Artificial Intelligence (“AI”) has been held as having the potential to transform the world.  While some believe we will be much better off in the hands of AI, others think it will lead to our inevitable downfall.  So, we thought we’d start by seeking AI inspiration and asking ChatGPT, probably the most talked about AI tool currently in circulation, whether appointing a professional trustee could help solve your UK defined benefit pension scheme problems.  Here’s what it said…

Whether it’s a good idea to appoint a professional trustee to a UK defined benefit pension scheme depends on the specific circumstances of the scheme in question. In general, a professional trustee can bring expertise, experience and independence to the role of trustee, which can help to improve the governance and decision-making of the pension scheme.

Professional trustees are typically individuals who are independent from the sponsoring employer and have experience in areas such as investment management, legal or actuarial advice, or pension scheme administration. They can provide valuable support to other trustees, especially those who may lack the necessary expertise or experience to effectively manage the scheme.

In addition, a professional trustee can provide a degree of protection to the sponsoring employer by helping to ensure that the pension scheme is managed in accordance with relevant regulations and legislation. This can help to mitigate the risk of the employer facing legal or financial liabilities arising from the scheme.

However, appointing a professional trustee may also come with additional costs, which may need to be carefully weighed against the potential benefits. It is also important to ensure that the professional trustee is independent and has the appropriate skills and experience to effectively manage the scheme.

Ultimately, the decision of whether to appoint a professional trustee should be based on a careful evaluation of the specific circumstances of the pension scheme, and should be made with the best interests of the scheme’s beneficiaries in mind.

A pretty fair analysis I thought although, as widely advised, ChatGPT should be used with caution as the information it provides is not always reliable.  Nevertheless, for those Schemes that are considering whether to appoint a professional trustee, we would indeed suggest a “careful evaluation of the specific circumstance”.  A fresh perspective, more robust governance, expertise specific to the circumstances faced, and the avoidance of potential conflicts of interest can all be powerful reasons for making such an appointment. 

Speaking personally, and having once been Managing Director of a small pensions advisory and Independent Trustee firm, I have worked with a number of excellent professional (and lay) Trustees.  The best ones are clear thinking and insightful, providing robust and appropriate challenge to the advice they receive.

AI in UK pensions

So will AI play a role in the wider world of UK pension benefits going forward?  I’m sure it will, although exactly where and how remains to be seen.  However, some of the ways we could see include:

Improved Risk Management:  AI could help pension funds manage risks by providing real-time analysis.

Enhanced Investment Strategies:  AI could assist in identifying patterns and trends in financial markets, helping Trustees and investment managers make more informed investment decisions. 

Personalised Retirement Planning:  AI-powered retirement planning tools could help pension scheme members make more informed decisions about their retirement savings.

Fraud Detection:  AI-powered fraud detection systems could help identify and prevent fraudulent activity, protecting pension scheme members from financial loss

Administrative Efficiency:  AI could help administrators streamline their operations, reducing costs and improving accuracy.  For example, AI-powered chatbots could handle routine member inquiries, freeing up staff to focus on more complex tasks.  Indeed, the Pensions Administration Standards Association (“PASA”) white paper launched on 22 February 2023 entitled “EAdmin – Focusing on a Saver-Centric Experience” suggests that investment in technological innovation is a must have in today’s society, not only to drive down costs but also for schemes to be able to deliver.

Human Resources:  A greater demand for programming and IT skills in the industry, alongside people who can understand the context of AI results, and assess how to move forward in a socially responsible way.

Blog writing – as demonstrated above!

Matthew Masters

Actuarial & Investment
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