User personalization and an ease-of-use approach are key in the adoption of artificial intelligence technology tools by pension plan sponsors, according to a new report by the CFA Institute Research & Policy Centre.

It found the application of AI has the potential to revolutionize plan sponsors’ administrative duties but will require a collaborative approach that incorporates the perspectives of firms, industry groups and regulators to maintain a consistency in its results.

Read: 59% of global institutional investors haven’t discussed AI with investment managers: survey

Plan sponsors will be required to create clear objectives within any AI approach that can offer evaluations of their effectiveness and consider the ability to improve experiences or outcomes for beneficiaries, the report said.

Smaller pension plan sponsors will likely require the use of external service providers to integrate AI into their daily operations, the report noted. In the face of this additional step, it said these pension trustees and administrators must perform effective due diligence to ensure adherence to privacy and data regulations and responsible use of technology.

According to the report, the use of technologies like generative AI and machine learning can enhance pension plan governance by facilitating multi-stakeholder interactions, reducing administrative tasks and aiding pension boards with decision-making, while on the investment front, AI models can boost the analytical capacities of portfolio managers.

Read: Institutional investors urged to examine AI integration beyond productivity: CPPIB

It can also enhance actuarial analyses of pension fund risks, keep market trend assessments up to date and may be especially useful to evaluate private markets and data related to sustainable investments.

The report noted Netherlands-based pension investment organization APG Asset Management, on behalf of Dutch pension fund ABP, uses its own large language model digital assistant to provide feedback on investment strategies and offer additional information for review.

With pension funds increasingly prioritizing the impact of climate change on their portfolios, the report said AI can also help plan sponsors with generating sustainability insights and reporting investment decisions and climate-related financial risk.

Read: Institutional investors considering AI need responsible rulebook: report

The benefits of AI can also add to defined contribution pension plans with personalized strategies across the life cycle of each individual investment plan, with accumulation and decumulation strategies based on member behaviour predictions, the report said.

“Pensions around the world are dealing with aging populations, rising inequalities and economic pressures that create challenges for retirement security and the long-term sustainability and adequacy of pension funds,” said Genevieve Hayman, a senior research affiliate at the CFA Institute and the author of the report, in a press release.

“This report demonstrates that AI can be used thoughtfully and carefully to help us address these mounting concerns.”

Read: 2024 Risk Management Conference: How can AI play a bigger role in investment decisions?