Role Of AI In Pensions: How Will It Cut Costs? Know What Global Pension Index Found

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The ongoing expansion of AI within the operations and decisions of investment managers could lead to more efficient and better informed decision-making

Artificial intelligence should improve pensions performance by cutting costs and highlighting upcoming risks, the Mercer CFA Institute’s global pension index report said. Netherlands grabbed the top spot in this year’s index.

Additional uses for AI could include building customised portfolios and identifying market anomalies, although AI was unlikely to be able to predict market movements with accuracy so uncertainty will remain, news agency Reuters reported citing the index findings.

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“The ongoing expansion of AI within the operations and decisions of investment managers could lead to more efficient and better-informed decision-making processes, which could potentially lead to higher real investment returns to pension plan members,” said David Knox, senior partner at Mercer.

The annual survey, which is sponsored by the CFA Institute association of investment professionals in collaboration with Mercer and the Monash Centre for Financial Studies, also pointed to risks of AI models generating fake information when used in a new context, and of cyber attacks against pension members’ data.

In 2022, India saw an increase in its overall index value, rising from 44.5 to 45.9 in the 15th annual Mercer CFA Institute Global Pension Index (MCGPI). This improvement, particularly in the adequacy and sustainability sub-indices, contributed to India’s rank of 45 out of the 47 retirement income systems assessed.

The Global Pension Index employs a weighted average of adequacy, sustainability, and integrity sub-indices, evaluating each retirement system based on over 50 indicators.

According to the report, India’s retirement income system includes an employee pension scheme tied to earnings, a defined contribution (DC) employee provident fund (EPFO), and predominantly defined contribution supplementary employer-managed pension schemes.

The Netherlands scored top marks in the survey of 47 pension systems around the world for the level of private and public sector pension benefits available, the sustainability of the system to last decades into the future and the quality of its governance, knocking Iceland off last year’s top position.

Iceland came second and Denmark third in the 2023 index.