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  • Writer's pictureSarah Ruivivar

AI: Revolutionising Pensions by Cutting Costs

📸 ModelProp / Midjourney

Artificial Intelligence (AI) is poised to revolutionise the pensions industry, according to the latest report by the Mercer CFA Institute.

The report suggests that AI can enhance pension performance by reducing costs and identifying potential risks.

AI's capabilities extend beyond cost-cutting and risk identification. It could also be instrumental in building customised portfolios and spotting market anomalies. However, the report also cautions that AI is unlikely to predict market movements accurately, meaning a degree of uncertainty will always remain.

David Knox, a senior partner at Mercer, believes that AI's integration into investment managers' operations and decision-making processes could lead to more efficient and well-informed decisions. This, in turn, could potentially result in higher real investment returns for pension plan members.

However, the report also highlights potential risks associated with AI. For instance, AI models could generate misleading information when applied in new contexts. There's also the threat of cyber attacks against pension members' data.

The annual survey, conducted in collaboration with the CFA Institute and the Monash Centre for Financial Studies, evaluated 47 pension systems worldwide. The Netherlands emerged as the top scorer, praised for the level of private and public sector pension benefits available, the system's sustainability, and the quality of its governance. This achievement knocked Iceland off last year's top position, pushing it to second place, followed by Denmark in third.

In conclusion, while AI brings promising prospects for the pensions industry, it's crucial to remain vigilant about potential risks. As we continue to navigate this new territory, the focus should be on harnessing AI's potential responsibly and securely.

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