Economy, Business And Markets

Pension Funds Under Duress

Business & Markets Desk
Pension Funds Under Duress
Pension Funds Under Duress

Iran’s pension funds are in financial trouble and are creating a huge drag on government finances, according to their executives and government officials. They are struggling to weather the effects of years of mismanagement and economic crisis.

“The Civil Servants Pension Fund’s revenues have fallen short of its expenses, given people’s increased life expectancy and unaltered retirement age,” the fund’s economics vice president told the Persian daily Ta’adol earlier this month.

“The fund failed to invest their revenues properly and is now running aground,” Mahmoud Shashahanipour added.

His comments are part of a series of public announcements about the poor financial state of Iranian pension funds.

The fund owns $2 billion in equities calculated at current market prices of the shares owned. The actual worth of these stakes is higher, as most of them give the fund a board position.

“The inputs and outputs of some pension funds are unbalanced,” said First Vice President Es’haq Jahangiri in a conference on Tuesday, the Persian daily Sharq reported. “One hundred percent of the pension money paid by Armed Forces Social Security Organization and 75% of CSPF’s pensions are paid for by the government.”

These public pension funds’ inability to operate independently using their own assets is despite the fact that more than half of pensioners are receiving minimum wage.

“Over 56% of pensioners receive the minimum wage,” Labor Minister Ali Rabiei said in the same conference on Tuesday.

This is while pensioners lost 67% of their purchasing power due to high inflation during 2006 to 2014, according to CSPF’s chief executive, Mahmoud Eslamian.

The cost of supporting these pension funds, civil servant salaries and other day-to-day operations of the government has soared in recent years. It has forced the government to abandon its investment projects and funnel away most of its investment budget to cover its operational expenses, according to the Persian daily Etemad.

Even so, the administration racked up nearly half of last year’s entire $13 billion deficit in the first quarter alone, Central Bank of Iran data show.

“This deficit is the result of decisions made over the years. Apart from that, this fund has less legal support compared to others,” said Shahshahanipour.

The government itself bears responsibility for the state of these funds. It owes them money. Not only that, but during the tenure of ex-president Mahmoud Ahmadinejad, many failing state companies were given to public pension funds in lieu of government debt. These companies only increased the financial burden on pension funds.

Furthermore, public pension funds became a platform for embezzlement and corruption during Ahmadinejad’s presidency. Criminal cases are abundant in this category, including embezzlement from Iran Insurance Company by his vice president Mohammad Reza Rahimi, for which he is currently serving a prison sentence.

Other than that, some of these funds, including CSPF, have a shortage of pension payers.

According to Shashahanipour, CSPF provides for government retirees but has less than one pension payer for each pensioner.

“Normally a fund needs five pension payers per pensioner to carry on normal operations,” he said.

Also, life expectancy has risen to 75 years from 60 year in the past, according to the veep, while retirement age remains unchanged. This means the fund has to pay more pensions and longer while its revenue stream dwindles.