Artificial intelligence (AI) is already reducing costs, improving efficiencies and revolutionising member communications, although risks must be managed to prevent saver detriment, the Pensions and Lifetime Savings Association (PLSA) has warned.

A recent survey from the PLSA, shared as part of is response to the Treasury Committee's AI in Financial Services inquiry, found that its members expect pension funds to have widely adopted AI by 2035.

In particular, 79 per cent said that they expect pension funds to be using AI to enhance member engagement and communication strategies (79 per cent), detect and prevent fraud (75 per cent), and improve data security (72 per cent).

In addition to this, a further 63 per cent expect pension funds to look to use AI to help personalise retirement planning (including advice and guidance), while 59 per cent expect it to be used to allow customisation of investment strategies.

Some schemes are already making use of AI in these areas, with research from the Society of Pension Professionals (SPP) revealing that the majority (87 per cent) of pension professionals confirmed their firm is using artificial intelligence (AI).

In its evidence to the committee, the PLSA argued that the most compelling use for AI within pensions is improving communication and engagement between pension schemes and their members.

In particular, the PLSA suggested that using scheme and member data, AI tools can help to create personalised communications to scheme members about their pension, while AI chatbots can help to provide accessible and affordable financial guidance to members.

The association also highlighted operational benefits, suggesting that AI can improve administrative efficiency and enhance trustee decision making, such as by providing data analysis to inform investment strategy and training trustees in other areas of their roles.

However, the PLSA warned that despite the benefits of AI, its adoption is not without risk.

In light of this, the PLSA urged pension schemes to adopt robust processes and strict protocols to mitigate the risks of data breach, cyber-attack, regulatory non-compliance, financial loss and other saver harms.

In addition to this, it argued that, given the inherent risks associated with the adoption of AI, it is essential that trustees remain responsible and accountable for delivering all fiduciary duties to savers.

But the PLSA also reassured the Treasury Committee that, given the strong regulatory environment in which the UK pensions industry operates, which necessitates human accountability and strong governance mechanisms, AI is unlikely to be solely responsible for end-to-end decision making in the foreseeable future, with human agents likely to remain central to decision making across the industry.

Previous industry research has shown that a hybrid approach, making use of human advisers and interactions, is also in line with saver preferences, as while UK savers are open to AI playing a role in pension customer support, they are not ready for a fully automated experience.

PLSA director of policy and advocacy, Zoe Alexander, said: “The adoption of AI throughout the pensions industry should be viewed as a positive development.

"AI is already reducing costs for schemes and members by increasing efficiency, improving communications and member engagement – to the ultimate benefit of savers. However, there are significant cyber security, fraud and data privacy concerns that any scheme adopting AI must look to mitigate.”

---