Artificial intelligence (AI) is set to become a cornerstone of the UK’s pension reform agenda – but understanding the technology and effectively overseeing it will be crucial to success, according to technology firm Lumera.
Forthcoming pension reforms, including the advent of pensions dashboards and the introduction of the Value for Money framework, will create a step change in how schemes use and manage data. However, Lumera’s Sami Saadaoui argued that the industry’s biggest challenge could be ensuring that AI is deployed responsibly.
Last month, the Pensions Regulator warned the industry to be cognisant of the risks inherent in using AI technologies, but also highlighted ways in which it had used AI itself in tackling pension scams.
Saadaoui, head of AI architecture and operations at the company, said: “AI is set to become a critical enabler of the next phase of pension reform as the industry digests and begins to implement the Pension Schemes Act.
“Schemes and providers will need to leverage AI to deliver more personalised member outcomes, support automated processes at greater scale and improve the consistency of decision-making across increasingly complex datasets.
“However, the real challenge is not simply adopting AI, but deploying it within a robust governance and control framework. Pension providers and trustees will need clear accountability, strong human oversight and transparent decision-making processes to ensure AI is being used responsibly and in members’ best interests.”
AI adoption increasing across pensions industry
The UK government has adopted a principles-based approach to AI regulation, meaning individual regulators will issue guidance while firms remain responsible for establishing their own governance frameworks.
Lumera says that for pension trustees and providers, this will require clear operating models that define how AI is used, monitored and overseen by humans.
Key initiatives – including default retirement pathways, Value for Money assessments, and small pots consolidation – will all increase demand for sophisticated data analysis, automated matching processes and standardised benchmarking.
This is expected to accelerate AI adoption across the pensions sector.
“AI… it is increasingly seen as part of the toolkit for improving member engagement and retirement outcomes.”
Priti Ruparelia, Independent Governance Group
A recent poll by the Society of Pension Professionals (SPP) found that around a fifth of respondents believed AI could be a “core part of the solution” to improving member engagement. The majority of the 150 respondents felt the technology would at least be a part of any engagement solution, but agreed that users need to be careful to mitigate associated risks.
Priti Ruparelia, an SPP member and head of defined contribution at Independent Governance Group, said: “While AI may not be the whole answer, and its rollout must be balanced with any risks, it is increasingly seen as part of the toolkit for improving member engagement and retirement outcomes.”
Future governance models are likely to incorporate a range of AI techniques, including clustering to identify trends, classification tools to support consistent decision-making and continuous monitoring systems to detect behavioural changes, according to Lumera.
Saadaoui added: “The UK’s principles-based approach to AI regulation means firms cannot rely on prescriptive rulebooks alone. Instead, they will need to demonstrate that their operating models, controls and governance frameworks are sufficiently robust to manage risks around bias, data quality, explainability and consumer outcomes.
“The current swathe of reforms significantly increases the volume and complexity of data that needs to be processed and analysed. Firms need the scalable technology and human expertise to ensure that AI is unleashed to its full potential within defined guardrails.”
