Most of the 17 active pension funds in Iran are on the verge of collapse and imminent bankruptcy. This situation is making it impossible for them to sustain operations without government and institutional intervention.
The support ratio, denoting the proportion of insurance contributors to pension beneficiaries, is a crucial metric. To avert the brink of insolvency, an insurance organization requires a minimum support ratio of 3.
Currently, this ratio has plummeted in the country’s pension funds, rendering the prevailing state of most funds akin to “bankrupt.” The confluence of a progressively aging population, dwindling support ratios, and a surge in premature retirements will further exacerbate the strain on pension funds.
In the spring of this year, the employed population numbered 23,577,638. Consequently, the livelihoods of nearly 64,340,000 individuals hinge on the labor and activities of these working individuals.
Another vital indicator is the “dependency ratio,” which is determined by dividing the total population by the count of employees. In Iran, this ratio stands at 3.7.
This signifies that each employed person, apart from themselves, must financially support an average of four other individuals. The lives of 25 million pensioners and retirees are sustained by the 17 pension funds. According to the dependency ratio, the fund crisis imperils over two-thirds of Iran’s populace.
The impact of the dollar shock has caused the real value of wages to plummet to its lowest point in a decade. Despite the nominal minimum wage hovering around 8 million tomans, the actual purchasing power of this wage is now less than 170 dollars, well below what people need to provide their basic needs.
The prevailing economic crisis, accompanied by an alarming inflation surge of up to 50% and a concurrent escalation of recession, has compelled a considerable number of workers to seek “early retirement.”
As per the findings of the Majlis Research Center, the rate of early retirement within the Social Security Organization has surged from approximately 14% to surpass 50% over the span of a decade.
A curious transformation has occurred in this fund, with the ratio of early retirement to standard retirement now standing at an almost equal split.
It’s worth highlighting that while the ‘life expectancy’ metric for Iranians has worsened over the past six decades, in addition, the average retirement age has been declining. This dual trend is poised to exert immense pressure on pension funds.
In recent years, a substantial portion of the annual budget has consistently been directed toward the government’s ‘general budget.’ Numerous analyses suggest that the government’s growing involvement in the economy, driven by the need to raise salaries and provide enhanced benefits to its employees, has led to this trend.
However, a critical aspect to consider is that a significant chunk of the government’s general budget is effectively ‘absorbed’ by pension funds. Indeed, these funds’ looming ‘insolvency’ has necessitated their continued operation through financial infusion from the government’s general budget, enabling them to fulfill their obligations to pensioners.
As per data furnished by the Majlis Research Center, the portion allocated to pension funds from the government’s general budget stood at approximately 12% in 2014. Fast-forward to the current year, and this allocation has risen to 15%.
For this year, the government is disbursing over 300 trillion tomans from its public budget to sustain pension funds. Remarkably, this figure falls just slightly short of the wages and benefits extended to its workforce. Notably, this allocation surpasses Iran’s entire healthcare budget by an astonishing 20%! But this has solved nothing due to the vast expansion of corruption within the government, especially in the pension funds, where most money is disappearing without any traces.
Within the framework of the 7th development plan, the government has sought to address a portion of the ongoing crisis through two proposed solutions. The first involves raising the retirement age, a proposition that still faces opposition within the parliament—the very body responsible for approving the 7th plan.
The second solution centers around the ‘consolidation’ of the 17 pension funds into a single entity, forming a ‘theoretical’ institution amid myriad challenges. In June of this year, when the notion of fund ‘consolidation’ was introduced by the regime’s Minister of Labor, it sparked a wave of criticism and reactions. Some experts interpreted this move as an impending crisis explosion.
Simultaneously, the Iran Labor News Agency released a report detailing the experience of the Iran Air Pension Fund and its transfer. The report highlighted: ‘Rather than ameliorating the circumstances of Homa retirees, this transfer exacerbated the accumulated losses of the company in question.’
Notably, fund members contended that the private company in question could, in accordance with the law, achieve profitability and agility by taking over and managing portions of National Homa Company’s assets, such as cargo firms or hotels, without necessitating incorporation into a larger entity fraught with challenges.
Additionally, some experts contend that pension funds have become a kind of ‘personal haven’ for certain individuals employed within the fund subsidiaries.
Hamid Haj Esmaili, a labor market expert, points out, ‘Numerous individuals secure positions on various companies’ boards of directors not because of their competency or skillset, but merely as an avenue for augmenting their income.
‘As salary structures in these positions are generally governed by established norms and laws from recent years, these individuals gravitate towards roles that offer opportunities for supplementary earnings through bonuses, attendance incentives, and concurrently, fund perks.
‘This tacit understanding operates within the realm of governing bodies and political figures in the nation, creating a mutual arrangement to generate additional income for each other.’