Everyone’s chatting about ChatGPT and the march of Artificial Intelligence (AI). But what do these technology advancements mean for the pensions industry? Felix Mantz, Director at Cardano Advisory, who leads our AI initiatives, shares his insights.

The pensions sector has already witnessed significant change over the past five to ten years thanks to advancing technology, digitalisation and the use of data analysis. It has transformed many parts of the industry. At Cardano, we expect much more of that to lie ahead and believe that technology can drive considerable improvements throughout the pensions system.

New tools of the trade

The Covid pandemic without a doubt accelerated the widespread adoption of remote working and electronic filing which has resulted in significant efficiencies in the area of governance. But, before that, we had already seen the emergence of tools such as funding level trackers and scenario analysis, delivering rich insights into ‘easier-to-model’ parts of the pensions system.

More recently, we are pushing into modelling new and more ‘complex’ areas, such as ESG portfolio analysis which trustees are increasingly required to focus on. At Cardano Advisory, we have recently introduced the ESG Dashboard into the UK market, which helps our clients understand the sustainability exposure of their investment portfolio, and enables them to monitor progress against the policies and strategies we’ve helped them develop.

Using tech to create scale

From a covenant perspective, our award-winning Discover covenant model uses new AI technology to make external covenant analysis more accessible for smaller pension schemes or scheme sections. Drawing on Cardano’s ratings database of historical covenant assessments, our AI tool uses this data to provide automated assessments for schemes/sections to analyse their covenant strength – both currently, and under hypothetical ‘what if’ scenarios.

More broadly, improving the level of support offered to smaller pension players has to be one of the biggest benefits of applying cutting-edge technology within the industry. Using AI technology to leverage advice that has already been developed for larger schemes means that we can efficiently help the long tail of smaller schemes that have all too often been overlooked. 

In general, new technology is boosting efficiency levels in a range of well-defined and labour-intensive tasks – tasks which, a few years back, many thought would be impossible to automate. Member engagement and education can now, for example, be enhanced through smarter portals, tailored information and question answering – or even independent financial adviser (IFA) chatbots. In the same way, data cleansing can go well beyond the digitisation and text recognition of old documents to a potential means of extracting meaningful insights from processing natural language.

Data, first and foremost

However, clever technology can only take you so far. Ultimately, it’s also down to collecting the right data which then enables the AI to deliver those valuable insights and solutions. To put it another way, AI and machine learning are only about 10% sophisticated models and 90% data collection and cleaning.

That was our own experience when building the Discover covenant model, where the collection of relevant data was essential to the success of the entire process. Deciding what is relevant is not always, of course, an easy call. It requires a flexible approach and an eye on what’s likely to come further down the road.

The industry’s priorities are constantly evolving with economic and regulatory changes, and new AI models are constantly emerging. Firms need to stay fully up to speed with these developments and adapt their approach to technology – and data collection – accordingly. At Cardano Advisory, we’re committed to remaining agile and embracing the best that technology can deliver to provide our clients with market-leading pension solutions.