A] Prelude
For more information on pension systems, risk and coverage, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
https://expatpensionholland.nl/global-social-security-coverage
B] The News
Adequacy is the extent to which current retirement income provides financial security for today’s retirees. Some opportunities for AI to potentially improve retirement adequacy includes the following aspects:
- Taxation support: AI could optimize tax incentives for plan participation.
- Preservation: AI could curb benefits leakage by suggesting a minimum access age.
- Vesting/portability: AI could help model different vesting and portability scenarios.
- Retirement benefit design: AI could propose the optimal mix of lump-sum and annuity payments.
- Separation: AI could suggest a fair division of benefits during a divorce.
- Continued accrual: AI could assess the impact of benefits accruing when workers can’t work.
C] Sustainability
Changing demographics and economics may affect the long-term viability of retirement and social security systems. Some people could outlive their retirement savings by nearly 20 years unless they work longer or receive more support from these income systems. Add in other factors such as inflation and government debt, and it’s clear that the future holds a great deal of uncertainty. AI has the potential to help facilitate future-focused decisions for more sustainable pensions and social security programs. It may also be able to improve both productivity and labour market access across different age groups.
D] Integrity
Running retirement income programs with integrity means ensuring that members gain sufficient value at a reasonable cost and with full transparency. AI could boost plan integrity by improving cost controls, outcomes and member communications. It could streamline transactional tasks to make plan administration more affordable. Generative AI could even personalize member interactions for better value and understanding.
Ethics and integrity go hand in hand and the potential use of AI in pensions and social security poses of course a number of ethical challenges. For example, there are questions surrounding whether AI should have the power to restrict retirement solutions for certain members and what governance and human oversight might look like when it comes to building equity, transparency and accountability.
E] AI-powered investments
Investment returns are an essential source of retirement income. These returns depend on several factors such as investment strategies, economic conditions and government regulations.
Many investment professionals are exploring AI’s future potential. Research by Mercer suggests that today 91% of investment managers are either using (54%) or planning to use (37%) AI for investment strategies or asset class research. Investors are already using AI to analyze data, risks and trends, to identify patterns and market signals, monitor risks and predict behaviour.
The evolution of AI also poses new challenges in the investment space. Low-quality data can cause AI to fuel misinformation and disinformation, the number-one risk in the World Economic Forum’s Global Risks Report. Cyber risk is another key concern. It’s important to stay vigilant through robust governance and data security as AI gains traction.
F] Financial wellness
People face complex financial decisions around retirement. It starts while they’re still in the workforce: which plans or programs to choose, how much to save or contribute and, ultimately, the retirement goals they’re working toward.
Most workers don’t expect to make these important long-term decisions alone. Today, just 45% of employees globally believe they are saving enough for the future — and two-thirds are trusting their employers to help them plan for retirement.
Employers can use AI to help provide more data-driven education for employees, as well as cost-effective benefits programs that address financial well-being. AI could help analyze each individual’s situation, guide them all through the benefits ecosystem and craft benefits communications that keep employees informed. Given the high cost of trusted financial advice, AI can also potentially improve access and outcomes for underserved populations who might otherwise make these decisions alone.
G] Finally
AI could potentially support modern retirement income systems, future-fit investment decisions and stronger employee benefits for lasting financial wellness. Yet even in the face of the challenges discussed here, there’s significant risk in trusting AI with too much too soon. All the systems and efforts that shape our health, wealth and careers demand human expertise, increased data security and robust governance plans.
AI is advancing every day, however. And while there’s still a long way to go, the finance and benefits leaders who explore it today will be firmly positioned tomorrow to reap the rewards!