How AI is transforming pensions

When we think about AI and its potential to disrupt the world around us we usually think of high-level computation, manual labour, or data-driven optimisation which lends itself to the repetitive nature of computer algorithms.

However, a new breed of AI is proving itself to be adept at more human tasks that focus on the creative arts. Take for example Aiva (Artificial intelligence virtual artist). Aiva is not only an AI but a published composer having released an album called Genesis (sorry Phil). What is incredible is that when played to a panel of experts none were able to identify that the music was created using AI.

The technology behind Aiva is based on deep learning algorithms. These algorithms act to reinforce learning techniques using layers of neural networks. This enables the AI to identify patterns such as the melodies found in music and recreate them to produce original sounds.

This is just one use for deep learning. It is set to transform numerous industries with applications ranging from facial recognition to natural language processing. So how might this be adapted to help with many of the challenges that we are seeing in the world of pensions?

Help is needed

Pensions are complex and help is in short supply. More than 8 million people in the UK have found themselves auto-enrolled into a workplace pension and the Pensions Freedoms have added a layer of financial complexity not encountered by your average saver. To tackle this knowledge gap are roughly 20,000 financial advisers who are understandably concentrating their efforts on those with the most to invest. This has led to a large proportion of the population largely ignoring the significant challenge of saving for the future. This large, often repeatable, data heavy problem is ideal for AI to get its teeth into.

The first challenge facing the pension industry is the simple scale of the problem. 8 million people who might all have a question and want to speak to someone regarding their pension would pose a significant problem even for the largest customer service team. Step in Amelia the customer service chatbot who in 'her' first 3 months on the job dealt with 60% of the customer service calls for Swedish Bank SEB.

Amelia is able to react to human emotions in real time and will divert to a human customer service representative in the event a question cannot be answered. AIs such as Amelia are only possible due to huge increases in computational power and natural language processing. These can be adapted to build a pension specialist AI. The great thing about this type of AI is the more it is used, the better it gets as unusual questions are answered by humans and then added to the accessible knowledge bank.

The value of financial advice

A recent study by the ILC-UK on the value of financial advice found that those receiving financial advice could increase liquid assets over the course of their life by as much as 32%. This is great news for those who do have access to financial advice but as previously stated there is limited supply of this service available.

AI is increasingly being used in the provision of robo-advice. The first generation of digital advisers provided an online portal that acted as an asset allocator based on minimal client data. The next generation of robo-advice is focusing on providing fully regulated, online advice in the complex pensions sector. AI is used to look for trends, driving efficiency and ensuring all but the most complex cases are dealt with digitally. AI can be used to understand attitude to risk and retirement goals and make informed recommendations to people to help them gain clarity on the kind of objectives they should be setting themselves.

As robo-advice is scaling rapidly in the UK, the efficiencies provided by AI and automated front and back office processes are making the provision of advice more affordable than ever. We are now seeing a significant increase in the amount of employer funded advice to employees aimed at helping them better manage their finances and specifically their pensions. Employers are increasingly seeing the value of financial advice that provides actionable recommendations to their employees as it is proving the key to driving changes in employee behaviour which leads to tangible improvement to financial wellbeing.

The AI discussed in this article is all currently available and functioning in the market and adoption rates are encouraging. The not too distant future will see radical change as the use of AI will be linked with open data platforms such as the pension dashboard, open banking and even health, taking complex data and distilling it into simple to understand recommendations and suggestions to not only get your finances in order, but your entire life thanks to your own virtual AI.

Phil Blows is director at Wealth Wizards.

This article was provided by Wealth Wizards.