Iran’s Pension Funds: An Unfolding Crisis

Disputes over Iranian pension funds are coming to a boil, a former official with Social Security Organization in Legal and Parliamentary Affairs said.

In a lecture titled “A Glance at the State of Pension Funds” at the Institute of Religion and Economic Studies in Tehran on Thursday, Mohsen Izadkhah also sought to scrutinize this unfolding crisis, the Persian daily Shargh reported.

Excerpts of his speech follow:

Iran’s social security system is built on the Iranian Constitution, the 20-Year Vision Plan (2005-25), “Law on Comprehensive Structural System of Welfare and Social Security”, international conventions, including Convention 102 of International Labor Organization concerning minimum standards of social security and Iran’s development plans, particularly the Fifth Five-Year Development Plan (2011-16), but has been overlooked by the executive branch.

Interventions by the government have even become more pronounced and unprecedented over the past decade.

An efficient social security program has specific features, including universality, inclusiveness and good governance. All international conventions have stressed the fact that the resources of every fund should be sustainable.

Take the example of Insurance Reform Plan. Over the past three years, expenditures of the plan have doubled healthcare expenditures in the past 52 years, but Health Minister Seyyed Hassan Qazizadeh Hashemi continuously complains that the costs have not been reimbursed in the past year. Why?

That’s because the sustainability of revenues has not been worked out in the plan, leading to widespread discontent among both medical community and insurances.      

There are 24 pension funds in the country, which are divided into public pension funds (Social Security Organization, the Armed Forces Pension Fund, the Civil Servants Pension Fund and Rural and Nomadic Insurance Fund) and exclusive funds (pension funds for employees of Islamic Republic of Iran Broadcasting, oil industry, banks, Central Insurance of Iran, municipalities). The state of Social Security Organization and the Civil Servants Pension Fund gives a comprehensive image of all other funds.

SSO has more than 13 million first named insured who account for 73% of the total number of all 24 funds insuring people. This fund has more than 3 million pensioners; the ratio of its insured workers to its pensioners is 4.25. The country’s other major fund, CSP, has more than one million first named insured while the number of its pensioners exceeds 1.2 million, suggesting that pensioners outnumber the employed insured population.

Sufficiency is another characteristic of an efficient social security scheme, meaning that pensioners should receive enough to lead a decent life. Currently, the benefits paid by the SSO and CSP cover 48% and 52% of the expenditures needed for a decent life, respectively. That’s why at least half of the retired population goes back to work despite all restrictive laws. In addition, nearly 30% of Iran’s population do not have any insurance at all.  

Another key figure in describing the state of pension funds is the ratio of workers to pensioners, known as the “support ratio”. Alarm is raised when the ratio reaches six. A fund cannot practically stand on its own feet and has to seek help from the government or sell its assets when the ratio goes below five.

SSO’s support ratio is now four and that of CSP is below one, which is horrific.

Pension funds have to grapple with another grave problem i.e. early retirement. Authorities had the misconception that by adopting early retirement laws, they can create jobs for young people. Employers and workers had the same belief and that made matters considerably worse.

In the fiscal 2016-17, premiums made up only 21% of pension funds’ revenues and the profits gained through investment of funds and sale of assets only accounted for 8% of resources, leaving the government to shoulder the costs of the funds.

Currently, the government owes more than 1,400 trillion rials ($35 billion) and counting to SSO.