The good , the bad and the vulnerable middle.

I see a lot of people whose jobs are safe enough for the moment, they are utility workers, those who depend on capital intensive industry , largely still public owned (the ones we can’t fire people from). They are the good people who need protection through pay and deferred pay = pensions.

There are also the bad, those in AI and those in hedge funds who know how to profit from these non-people, these non people (AI) need no pay or pension and those who are in control of AI and investment in it are beyond the reach of boring pensions.

What worries me is the middle. The business that can broadly says is software as a service. We have a lot of people in this squeezed middle. A large pension administrator told us last week they employed 1,000 people. What are they doing that cannot be done by AI?

The service industry that relies on software to deliver is vulnerable and that goes not just for jobs but for investments

Alan Livsey explains in the FT that companies that have integral value are worth seeking out. He calls business that is beyond AI as having a halo.

The companies with a halo are high on this table

The light blue lines are for sectors and sum up the American market that this is based on. the most resilient are the capital intensive sectors which require our investment whatever. In the middle are a number of sectors that will be hit by AI and at the bottom of the chart are those businesses that need little capital because they will be controlled by AI and need no investment.

Halo focuses on sustainable business models which can survive disruption as much as anything else. Considering this group as “AI-protected companies is the best way to think about this,” says Josh Brown, chief executive at Ritholtz Wealth Management in New York

Brown at Ritholtz is more explicit about the sustainability of this theme.

“I think this is the birth of a new factor in the AI age. Investors will have to think how ‘Halo’ a company is before they pull the trigger on buying a company,”

he argues.

Being a pension man, I will extend Livesy’s argument to pensions. there is a part of the market that will not need pensions in the sense that they were developed since the second world war because retirement will not be necessary. If you are working in a world which has moved on , you will either be servicing the rich and need a pension as you’ll be knackered in your 60’s or you’ll have been served by the AI culture and be rich. I do see society polarising like that.

I see investments that are either capital heavy like utilities where those working in it need pensions and I see – at the other end – people being served by businesses based on software but not employed by them.

Where I see vulnerability is in the middle, those who neither work in the public sector or for organisations that pay pensions because they are dependent on manual labour. Those in the middle are depending on delivering in those areas at the bottom of the chart. Here I see the need for humans to be increasingly limited. What will need to develop is somewhere for humans to be employed and get pensions. We don’t know how this sector will develop though there may be people who can foresee how employment for the vulnerable middle will be reconstitute.

As for those of us, thinking of where to devote pension strategies that replicate the DB plans to a degree, I see those sectors to the top of this chart as needing them.

Those industries that want flexibility because they are not stable but constantly being undermined by AI as the vulnerable middle which will be targeted by those selling the flexibility of DC. At the far end “the bad” are those who profit from the new world of AI and they will not need pensions but can live off self investment and wealth management.

Please don’t laugh at this sales strategy, but it is what I am using to decide upon who best needs protection and who already has protection. If I was in the vulnerable middle I would  be looking to secure pension while I can and while I’m needed in work. I think there are huge numbers of us who will not benefit workwise from AI and who need whatever security we can get.

Those at either end don’t need better pensions. Those who are always needed will get DB and those who run the AI show will have wealth.  But the middle – the vulnerable middle – need better pensions that give security that they’re not getting from the workplace saving that they’re relying on at present.