AI adoption in UK pensions market brings both benefits and risks

Pension funds in the UK are increasingly looking to AI-empowered tools to help improve engagement with members, boost administrative efficiency and drive down operational costs, according to a recent survey by the Pensions and Lifetime Savings Association (PLSA). According to the survey findings, the majority of the PLSA’s members anticipate that pension funds will have widely adopted AI by 2035 to enhance member engagement and communication strategies (79%), detect and prevent fraud (75%), and improve data security (72%). Additionally, 63% of members expect AI to play a role in delivering personalised retirement planning, including advice and guidance, while 59% foresee its use in customising investment strategies.

The survey formed a key part of the industry representative body’s response to the Treasury Committee’s AI in Financial Services inquiry. The purpose of the inquiry is to examine how the UK financial services sector can take advantage of the opportunities in AI while mitigating any threats to financial stability and safeguarding financial consumers, particularly vulnerable consumers.

In its submission to the inquiry, the PLSA said that it believes the most compelling use for AI within pensions is improving communication and engagement between pension schemes and their members. AI-powered tools can create personalised communications tailored to pension scheme members, while AI chatbots offer accessible financial guidance to savers at a lower cost.

Beyond engagement, AI is also seen as a useful tool for streamlining administration by automating routine processes as well as enhancing trustee decision making by informing investment strategy with data analysis. The growing integration of AI into pension schemes and the efficiency and cost advantages it can deliver, the PLSA said, will lead to wider adoption across the industry.

However, the PLSA warned that pension schemes must “carefully” manage inherent risks to protect savers from harm. Cybersecurity threats, data breaches, regulatory non-compliance and financial risks are among the concerns it said must be addressed through robust protocols and oversight mechanisms.

The PLSA said that given the UK pensions industry's strong regulatory environment, human accountability and strong governance mechanisms remain critical. It emphasised that AI is unlikely to be solely responsible for end-to-end decision-making in pensions, and that trustees must remain accountable for ensuring that fiduciary duties to savers are upheld.

The PLSA’s written submission also mentioned that the risk of non-compliance with regulation is among the main barriers to AI adoption in the pensions industry. It recognised that the regulatory framework surrounding AI in the UK is still at an early stage, with no specific statutory AI regulation. While regulators such as the Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) have not yet produced detailed plans for regulating AI in the pensions and financial services sectors, both have started to engage in the area.

In 2024, TPR published its Digital, Data and Technology Strategy. Earlier that year, the FCA published its AI Update, outlining the regulator’s approach to promote the safe and responsible use of AI in UK financial markets.

Pensions expert Simon Laight of Pinsent Masons said: “This is a rapidly evolving area. It’s vital for pension schemes to keep up-to-date on technological developments and manage associated risks.” 

“It’s also important to be aware that members are increasingly using AI for support with decisions about retirement and how to access their pensions.  This may prompt unexpected queries or requests.  Also, AI tools such as ChatGPT may shape members’ expectations for the way they receive pension information and influence how they engage with schemes and providers,” he said.

Laight added: “The regulators are getting involved. TPR has said it will work with industry to generate a safe space to collaborate on AI and data. It wants to encourage pensions providers to develop and adopt new technologies that enhance the transparency and efficiency of pension services, so we can expect to hear more from TPR in future.”