Pension funds can be divided into two groups: The first group guarantees the purchasing power of members during their retirement while the second group only provides pension to their members. Iranian pension funds fall within the latter group, Nasser Zakeri, an economist, said in an article for the Persian daily Shargh.
A translation of the text follows:
Pension funds in all countries are established upon the premise that those who hold a job need to save part of their monthly wage to receive a pension for the rest of their lives once their employment ends. The employed may get a job promotion during their working years and get higher salary and accordingly pay high insurance premiums.
However, their pension will be in proportion to their last salary, such that they can spend the rest of their life without financial worries.
In other words, the pension fund assures the employed that they will be more or less provided with the level of welfare they enjoyed during their employment, which means the purchasing power of the retired person should be maintained under inflationary conditions. Otherwise, the pension fund has failed to create the peace that the retired person expected.
In the absence of such a guarantee, the employed should think of other savings and endeavors so that they don’t face financial woes during retirement.
The pension funds in Iran neither have the intention nor the ability to maintain the purchasing power of retirees
Pension funds can be divided into two groups: The first group guarantees the purchasing power of members during their retirement while the second group only provides pension to their members. In fact, there are few funds in the second group.
These funds may increase the amount of payments over time which, of course, will not be proportionate to the inflation rate. The members of the second group of funds will ultimately face hardships over time.
The pension funds in Iran usually belong to the second group; they neither have the intention nor the ability to keep the purchasing power of the retirees unchanged, but why? The answer lies in the following four points:
For years, the government has failed to fulfill its financial obligations regarding pension funds. As a result, these funds did not have sufficient resources to invest and improve their financial status.
The interventions of the government have turned the funds into the so-called backyard of governmental agencies. These funds do not have the opportunity to enjoy the services of skilled managers.
Government interventions have, at times, paved the way for the misappropriation of the funds’ resources. Transferring loss-making economic enterprises to the funds, using the funds’ resources to solve the government’s problems and imposing new expenses on the funds are some forms of these interventions.
The survival of pension funds always depends on the success of their investments. Their resources should be put in the most productive sectors and the most profitable projects.
Funds need to be able to hire the most efficient managers and experts to identify the best investment opportunities. However, the government appoints inexperienced individuals as senior managers who waste resources in unprofitable projects.
A few years ago, one of the senior officials said many projects of affiliated companies are not economically viable
Our economy has faced the most severe sanctions in the past few years. Sanctions have created economic recession and as a result of recession and unemployment, the income and expenses of the funds have both changed in an unfavorable way.
These reasons, besides the negligence of officials, about the necessity of upholding the dignity of pensioners have placed our pension funds in the second group. They are unable to guarantee a life with a satisfactory level of livelihood for their members in their post-employment lives.
Many retirees have come to the conclusion that if they hadn’t paid monthly premiums from the very beginning and invested the sum themselves, they would have received more returns now.
Making up for this grave mistake requires great determination. The government should formulate and implement a wise roadmap to transform the pension funds from the second group into the first group.
