How AI is transforming pension management

The Netherlands is leading the way

How AI is transforming pension management

Artificial intelligence (AI) is proving to be a game-changer in the world of pension management, offering concrete benefits that translate to cost savings and better investment outcomes for pension holders, as highlighted in a recent report by the Mercer CFA Institute.

One of the standout benefits of AI is its ability to reduce operational costs. By automating various aspects of pension management from data analysis to investment decision-making, AI minimizes the need for extensive human intervention. These savings can then be passed on to pension holders, enhancing their overall returns.

"The ongoing expansion of AI within the operations and decisions of investment managers could lead to more efficient and better-informed decision-making processes," Mercer senior partner David Knox said. “AI also has the potential to improve member-engagement and help individuals make long-term decisions about their financial decisions. Both advances should improve retirement outcomes.”

Risk mitigation is another area where AI is making a marked difference. The technology is adept at identifying and highlighting potential risks, enabling pension managers to take proactive measures to safeguard investments. This ensures that pension holders’ investments are not only optimized for returns but are also shielded from avoidable risks.

In the global context, the Netherlands has emerged as a front-runner, scoring the highest in the survey of 47 pension systems worldwide. The nation’s retirement income system is lauded for the level of private and public sector pension benefits available, its long-term sustainability, and the quality of governance. Iceland came second, while Denmark came third in the 2023 index.

Yet the integration of AI is not without its challenges. The report points to potential risks, including the generation of misleading information when AI models are applied in new contexts and the threat of cyberattacks targeting pension members’ data.

It’s clear that the global pension landscape is on the brink of a profound transformation with AI technology at the helm. The Netherlands’ rise to the top spot is a testament to the tangible benefits AI offers in enhancing the integrity, sustainability, and benefits of the retirement income system, but a necessary call for a more secure integration is one that cannot be overlooked.

“AI by itself is not the complete answer. There will always be a need for human oversight. Despite these risks, AI has the opportunity to deliver a higher standard of living in retirement—a worthwhile objective for all pension systems,” Knox said.