How AI and technology will reinvent pensions

Its vision of a future with near universal access to defined benefit (DB) pensions surprised a majority of the audience, yet the technology needed to get us there is available today. Here it brings this vision to a wider audience.

Different tools, same tasks

To inform how we use technology in the future, we should acknowledge how as an industry we've adopted it so far. Over the last 60 years, the power of computers has changed beyond recognition: In the 1960s, the computer powering the Apollo moon landings weighed about the same as a small child and was about 60cm long, while today we each have a computer 200 million times more powerful in our pockets - our phones.

An insight into how the pensions industry has embraced technology in this time can be gained from two publications. The first, a paper in 1966 by an actuary named Sidney Benjamin, who wrote about how computers could help actuarial work, stating in the opening paragraph: "Most of the activity of actuaries with computers to date has been concerned with putting actuarial work onto computers."

The second, an article in Professional Pensions - Pensions in 2022. What's next for technology? The experts views - which focused on the pensions dashboard program and centralising data and audit trails. In other words, putting data onto computers.

So, it seems that we as an industry are still very busy digitising our data.

The six Ds of digital disruption

Where does this put us relative to the world around us? If you chart the impact of technology on the world, it often follows an exponential path of development then adoption, recognised as the six Ds of digital disruption: digitisation, deception, disruption, demonetisation, dematerialisation, and democratisation. These are described in more detail in the Reinventing Pensions Live video.

For a technology to make the biggest impact on our lives, our goal should be to aim for democratisation. And it's this D for democratisation that we believe the pensions industry should be aiming for too.

The disruption of AI

We are already on a trajectory determined by the existing technology developing around. In the next two years, artificial intelligence (AI) is going to be disrupting industries everywhere and its applications will be almost limitless. At Knowa we're already seeing the emergence of an AI trustee, a permanent member of the board that misses nothing. The AI trustee can summarise lengthy advice to boards in real time; it can help chairs by prompting them with questions they should be asking in a meeting; and it can suggest decisions to the board based on the board's entire history of decision making and information.

The AI trustee won't be foolproof but it will improve a board's access to its long-term memory, helping the real board members make better decisions and ensuring nothing is ever forgotten. This AI-powered board memory will become a commodity that every board is expected to utilise, where those that don't will be the outliers. Indeed, in the US there are already suggestions in the medical industry that it could become malpractice for a doctor to diagnose a patient without also referring to an AI diagnosis.

Over in the DC world of pensions, we will see members getting free financial advice plugged into their lives, knowing their finances, lifestyle, health, and even their DNA - connecting the dots between them and allowing members to optimise how much they save at every step in their lifetime.

But these developments - which we will see in the next two years - don't address a fundamental problem that we still have. Which is that there is no guarantee these members will reach retirement with the income levels they need, because the risk still lies with the member.

Democratising pensions

We therefore think our industry needs a more ambitious goal, one that technology can help us achieve - put another way, there must be more we can do.

Now imagine a future world where pensions are built on a blockchain. Where smart contracts automate key processes: the contributions in, the payments out, and the fund management. All delivering the frictionless running of pension schemes.

Governing this is a scheme powered by an AI autopilot, helping make the best decisions at the right times and managing risk to a level we can't even comprehend today.

Could this total reassessment of the risk and cost of running defined benefit schemes allow their sponsors to reacquaint themselves with the benefits of DB? Might it make Collective DC schemes accessible to a wider population? Or could this be the building blocks upon which an entire population can access a universal pensions income, truly democratising pensions?

Embracing technology today, not tomorrow

The question we should be asking ourselves is not if this is possible, but how do we get there.

It's by us as an industry embracing the latest technology developing around us. Let's not wait for somebody else to do it for us, nor dismiss it as not suitable for our industry.

However, using these tools alone will be no guarantee for success. Success will come when we learn to optimise how we use these tools. And when we get there, the most successful organisations will have been collecting their knowledge and training their AI autopilot for over a decade.

Will Henderson is the co-founder and chief technology officer and Aled Davies the chief commercial officer at Knowa