For years, experts have been warning about the bankruptcy of retirement funds. This has been a pressing issue for almost 10 years now and the situation continues to worsen every day. The fact that retirees constantly face difficulties in receiving their rights and benefits is also considered one of the hidden reasons for the bankruptcy of these funds. However, if we look at this issue from a population perspective, with the increase in the number of retirees and the lack of sufficient financial resources in the near future, the situation will become even more critical.

The government has decided to merge 18 retirement funds in response to a budget deficit of 300 trillion tomans and increasing debts to these funds.

Retirement funds in Iran are called “time bombs”, not because they are all considered bankrupt in some way, but because they can cause devastation to both the economy and society of Iran along with bankruptcy.

It has been over a decade since the Islamic Republic government has been using tricks such as allocating shares, transferring factories, and even gifting lands to the retirement funds to cover up the pension crisis; however, official reports show that out of a total of 18 retirement funds in Iran, 17 are bankrupt or on the verge of bankruptcy.

The proposed seventh development plan suggests reducing the retirement age for women in difficult and hazardous jobs to 45 years and for men to 50 years; a proposal that, according to experts, could be a countdown to the explosion of hourly retirement fund bombs. In many countries, policies are being implemented to increase the retirement age, but in Iran, the retirement age is set between 45 to 53 for women and 50 to 56 for men. (1).

The low retirement age in Iran is one of the most important factors that increases the financial burden on pension funds year after year. Another dangerous factor is the decrease in the support ratio to employed individuals; meaning the ratio of retirees to employed individuals is decreasing.

Support means the ratio of insurance payers to pension recipients. The minimum support ratio to prevent an insurance organization from reaching bankruptcy is 3. Now, this ratio has decreased to a point in the country’s pension funds that the current situation of most funds can be called “bankrupt”.

With the continuation of aging population and the declining trend of support ratio, alongside the increase in early retirements, the pressure on retirement funds also increases. Currently, the support ratio in the national retirement fund is 65% and in the armed forces it is 83%. This is while the global average is 6% (in simple terms, in a standard fund, six people should work to support one retiree).

The state and daily life of pension funds are mainly measured by the “dependency ratio”; an index that determines the number of people whose lives are dependent on the salary of a working individual. According to the report of the Statistical Center of Iran, in the spring of this year, the number of employed individuals was reported to be 23,577,638. Considering Iran’s population of nearly 88 million, the lives and livelihoods of approximately 64 million and 340 thousand people are dependent on the work and activities of employed individuals.

The ratio of the population of Iran to the number of employed individuals is a factor in measuring the situation of pension funds. This number is 3.7% in Iran, meaning that each employed person, besides themselves, must provide for the expenses of an average of 3.7 other individuals.

Unhappy retired people.

The real value of wages has reached its lowest level in a decade due to the shock of the dollar rate decreasing. Although the minimum wage is now approximately 8 million tomans, the real value of this amount becomes less than 170 dollars. Economic crises, accompanied by a 50% inflation rate and an increase in recession, have led many workers to request early retirement.

According to the research center of the parliament, the rate of early retirement in the Social Security Organization has increased from approximately 14% to over 50% in the past decade. In fact, a strange phenomenon has occurred in this fund, and the ratio of early retirement to normal retirement has become “half-half”. It should also be noted that the “life expectancy” index of Iranians has been increasing in the past 60 years, but at the same time, the average retirement age is decreasing. This puts a lot of pressure on retirement funds.

Inflation and the increase in the poverty line threaten retirees the most. Although this year the pension increase was 27% for those covered by social security and 20% for other funds, this group is under more pressure from inflation and living difficulties than any other segment of society.

According to unofficial reports, the poverty line in Iran has reached 30 million tomans, while the minimum pension for retirees in 1402 (2023-2024) has been announced to be around 5 million and 500 thousand tomans.

There are a total of 18 retirement funds in Iran that cover 25 million retirees and pensioners. Due to the dependency ratio, the resource crisis in these retirement funds can affect the lives of 50 million people. This year, a budget deficit of approximately 300 trillion tomans has been estimated for these funds, and it is predicted that by 2026, the resource deficit of these funds will reach 800 trillion tomans.

The government is legally obligated to provide 8 to 10 percent of the resources of some funds, some of which are included in annual budgets and receive funds from the general budget. In this year’s budget bill, the government has allocated 330 trillion tomans to compensate for the budget deficit of pension funds, which is 113 trillion tomans more than last year.

The numbers and figures of annual budgets over the past 10 years show that the share of pension funds from the general budget has increased from approximately 12% in 1393 to over 15% of public resources in this year’s budget.

When these numbers are placed next to the deficit and government debts to funds, they reveal the depth of the tragedy of pension funds; in a way that if the current trend continues, it can be expected that within the next three years, five pension funds will allocate more than half of the government’s budget to themselves.

From island selling to merger proposal.

The plan to merge pension funds has been proposed two years ago, but due to the anticipation of potential social crises, the decision to implement this plan has been delayed.

This year in April, the controversial statement of a Ministry of Labor official – which ended with his dismissal – sounded the alarm about the severity of the pension funds’ situation. Sajjad Padam, the director of the Ministry of Labor’s insurance, had said, “We will soon be forced to sell Qeshm, Kish, and Khuzestan in order to pay the pensions.” His reference to the sale of 120 islands in Greece was a result of the pension fund crisis in that country. Although such statements are considered rebellious by the officials of the Islamic Republic, the speed of action to dismiss this Ministry of Labor official indicates an attempt to cover up a crisis that is intensifying every day.

This comes at a time when the economic protests of retirees, which had been somewhat reduced during the protests of the “Women’s Freedom Movement”, have intensified since the beginning of this year.

These days, the government is seeking a solution to cover the budget deficit of pension funds and at the same time, it is working on a plan to merge them.

According to some economic experts, the reason for merging funds is to reduce the risk of bankruptcy and to provide coverage for the resources of these funds to prevent potential crises.

Among the leaked letters from the Presidency Institution hacking of the website, there were letters dated January 5, 2022, signed by the Deputy Minister of Information to the First Deputy of the President, stating that due to the “inability” of the special retirement fund of the Ministry of Information to pay the pensions of its beneficiaries, “another amount of one billion tomans should be allocated in the 2023 budget law for the special retirement fund of the Ministry of Information.” Some government officials have repeatedly reported bankruptcy of some retirement funds in recent years. In light of this, this letter from the Ministry of Information is another evidence of the unstable situation of retirement funds in Iran, many of which have gone bankrupt and the financial security of their beneficiaries is at serious risk.

Bankruptcy and corruption; two sides of the same coin.

The situation of pension funds in Iran is like an iceberg, where what is said about its crisis is only the tip of the iceberg that is visible, but the full extent of the turmoil in these funds has not yet been fully revealed to the general public; a concerning condition for the future of livelihood and economy, with irreversible consequences.

Perhaps if the former deputy minister of labor had not said, “To prevent the bankruptcy of these funds, we must sell Kish, Qeshm, and Khuzestan,” attention would not have been paid to the tragedy of the bankruptcy of pension funds in society. As mentioned, Sajjad Padam’s remarks were followed by his dismissal, but the problem of government debt to pension funds and the dire conditions of these funds, which economists call an “economic tsunami,” is not something that can be solved by orders and the replacement of managers.

In Iran, there are 18 pension funds, including the “National Pension Fund” and “Social Security”, which with their level of subsidiaries, are practically small governments within the government. These two small governments are drowning in corruption, debt, and accumulated losses. Although their dire state alone is enough to destroy Iran’s economy, it is worth knowing that the remaining funds are also not doing any better.

In addition to these two funds (National Retirement Fund and Social Security), there are 18 retirement funds in Iran, none of which are currently in good condition. It should be noted that although the Cultural Educators’ Reserve Fund is not included in this list, it has a relatively similar function and is in a more critical condition than the other funds. These include the Agricultural, Rural, and Nomadic Insurance Fund, the Armed Forces Social Security Organization, the Retirement Fund for Employees of the Ministry of Intelligence of Iran, the Retirement Fund for Employees of Iran’s Steel Industry, the Retirement, Pension, and Welfare Fund for Employees of the Oil Industry, the Retirement Fund for Employees of the Central Bank of Iran, the Retirement Fund for Central Insurance of Iran, the Retirement Fund for Insurance of Iran, the Retirement Fund for Employees of Ports and Maritime Organization, the Retirement Fund for Employees of Tehran Municipality, the Retirement Fund for Employees of Iran’s National Airline, the Retirement Fund for Employees of Iran’s

The main factor in the crisis of these funds is the government’s interference in their management and use of their resources, as well as the funds’ dependence on the government’s budget. The amount of government assistance to the country’s pension funds, which was equivalent to 3,606 billion and 606 million tomans in 2009, reached 73,350 billion and 350 million tomans in 2020, 179,940 billion and 940 million tomans in 2021, 214,580 billion and 580 million tomans in 2022, and in the budget of 2023, it has reached an astronomical amount of 351,460 billion and 460 million tomans. According to the report of the Research Center of the Islamic Consultative Assembly, the value of commitments of this fund is about 224% of the gross domestic product, the value of assets is about 37% of the gross domestic product, and the total deficit of the

Furthermore, 76% of the funds’ claims are related to the Social Security Organization, 12% to the Support Fund and Retired Employees of the Steel Industry, and 10% to the National Retirement Fund. This increasing level of debt has caused the Iranian economy to become paralyzed in the next three years; because the amount of deficits of the funds and their impact on their subsidiary companies will lead to the closure of a significant portion of the country’s industries.

The news of this corruption has leaked out in various stages over the past 20 years, but it seems that the government, due to its mafia-like structure, is unable to fight against it. Widespread corruption in the Cultural Fund has been one of the biggest corruption cases in these institutions. The case of corruption in this fund was first brought up in the middle of the 1390s and was initially called the “Eight Thousand Billion Toman Corruption”, but later the amount was announced to be 15 thousand billion Toman. On the day of the trial, the representative of the prosecutor also announced that the amount of corruption in the case of the Cultural Fund and the Capital Bank is 14 thousand billion Toman.

Only the number of corruption cases in retirement funds in the ninth and tenth governments is sufficient to understand the reasons for the destruction of Iran’s economy. Corruption of 120 million dollars, illegal transfer of 150 billion tomans of land, and the transfer of rent-seeking properties are just a fraction of the disclosed cases in the country’s retirement funds. Corruption of one trillion tomans in Shasta, a case of damages caused by violations, and a case of 10 million euros corruption in the import of iPhones, as well as multiple violations by subsidiary companies worth 900 billion tomans, are just a few of the corruption cases in these institutions.

These are, of course, beyond cases of corruption during Saeed Mortazavi’s management of the Social Security Organization, in which only in two cases, 5.3 million euros and 82 billion yen of violations have been recorded. In the first case, Saeed Mortazavi had committed in agreements with Babak Zanjani that in exchange for a sum close to 4 million euros, 138 subsidiary companies of the Social Security Organization would be transferred to him. The actual value of these companies was many times higher than the agreed amount. The trend of violations continued in subsequent governments, which shows that the root of the problem, alongside the corruption of managers, is the breeding ground for corruption in these conglomerates.

The key point in the issue of pension funds is that in a country plagued by corruption and rent-seeking, why should governments hand over such desirable ground for corruption to private entities in a real sense, and on the other hand, why should private sector investors be willing to buy companies that are entirely contaminated with losses, damages, and rent-seeking.

All of these challenges have convinced economists that the melting glacier is causing retirement funds to rapidly decline, and at such a pace that it will soon drown the Iranian economy.

Increased government intervention
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While the ongoing protests of retirees have intensified, according to the government’s spokesperson, Ebrahim Raisi, the share of pension funds in the budget is now equal to the share of the country’s development budget.

The share of pension funds from the government budget has had an increasing trend over the years and has reached 15% in 1402 (2023) from around 12% a decade ago. The reality is that pension funds in Iran are bankrupt and only with direct and continuous intervention from the government can they continue to exist. In the coming years, for four reasons, there will be a greater need for this intervention. First, the economy of Iran has not shown significant growth during these years. In the 90s, Iran’s economic growth was zero, four decades of inflation have broken the purchasing power of Iranians and per capita income is still below pre-revolution rates. The vast majority of Iranians have not had the ability to save or accumulate wealth during these years. The meaning of this statement is that retirees will have very little personal savings and wealth and will heavily rely on their monthly pension to cover their living expenses. Second, organized corruption in pension funds and the inefficiency of managers have

New resolution of the parliament; expenses.‌

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Reforms from the people’s pocket.

On Monday, November 28, 1402, the Islamic Consultative Assembly voted to increase the retirement age. This issue has caused a lot of controversy in recent times, with some referring to it as anti-worker and anti-retiree measures. However, the public relations of the Assembly has denied the 12-year increase in retirement age in response to these criticisms. This issue was approved during the review of the supplementary clause of Article 29 of the Seventh Development Plan, presented by the government, and is expected to be sent to the Guardian Council for final approval. According to the details published about the increase in retirement age, for every year of employment, 5 months will be added to the retirement age for insurance payers with 10 years of experience, which is equivalent to a 12-year increase in retirement age. This means that for someone who has recently started paying insurance, it will take 42.5 years to retire.

The policy that is hidden beyond such decisions is clearly and blatantly sacrificing and reforming at the expense of the people’s pockets. If we take a brief and superficial look at the government’s plans and programs in response to economic abnormalities and various disasters, we will understand that the government has chosen the simplest and easiest solutions to solve various challenges, most of which have gone unnoticed by the poor and vulnerable people of the country.

The increase in gasoline prices with the code name of fuel management in 2019 was one of the plans that had a negative impact on the country, especially for the people. Paying the claims of depositors of monetary and credit funds in 2012 through government intervention in the resources of the Social Security Retirement Fund, which resulted in the same unfortunate situation for retirement funds and empty pockets for retirees.

The fact that the government allocates a large amount of resources to retirement funds in its annual budget is a simple and easy decision that will come at the expense of the people’s pockets. This will easily lead to an increase in the government’s budget deficit, which will ultimately burden the people with inflation, a burden that they will have to bear forever. Reforms that are funded by the people will inevitably fail, as the beneficiaries of these reforms should be the ones to pay for them, not those who are negatively affected by their implementation. The government’s decisions are like giving a cancer patient a temporary pain reliever that will only make them feel better for a few days, but the disease will continue to progress at a deadly pace. This is also true for the recent decision made by the parliament in response to the government’s operational plan. The government has burdened the retired, workers, and their families with the weight of the bankruptcy of retirement funds, while they themselves and all the creators of this

Buttocks.

In recent years, many retirees have held daily gatherings in protest of poor living conditions. Retirees are protesting the lack of implementation of “equalization” of wages, poor living conditions, and not addressing their demands.

The results of the predictions by the Organization for Budget and Planning show that the population over 65 years old in the country will increase from the current 5.6 million to 15.2 million in the year 1425, with a growth of 9.5 million people. One of the consequences of this increase in the number of elderly is events that will occur in the future for retirement funds.

The internal resources of the funds are currently not enough to cover the gap between expenses and income. With the population of elderly people in the country expected to triple, many of whom will be receiving pensions and retirement benefits from one of the 18 national funds, it could lead these pension funds to bankruptcy in the near future.

Despite the dire situation of pension funds and the draining of their resources to other sectors of the economy, experts suggest several solutions to reduce the consequences of this unhappiness.

The key solution and the roots of returning the country’s train on the track of progress and civilization, transforming Iran into a normal member of the global community, connecting to the international economy for economic prosperity, creating job opportunities and providing investment opportunities. Without economic growth, it will not be possible to solve this crisis.

In the second step, corruption and inefficiency must be eliminated from the management of these funds and replaced with transparency and efficiency; but such a thing is not possible without establishing transparency and efficiency within a broader framework of the economy and politics in Iran. The Islamic Republic has shown that it has neither the ability to create economic growth nor to combat corruption and inefficiency.

The third step is increasing the retirement age, but this solution is not desirable within the framework of a national government. The government is accustomed to implementing economic reforms only from the pockets of the people. While the Islamic government is busy wasting money on enriching the clergy and the Revolutionary Guards, raising the price of gasoline or increasing the retirement age is nothing but taking money from the people to fill the pockets of the “wise rulers”.

The fourth step, after creating economic growth and eradicating corruption and inefficiency, is to rebuild the population pyramid by increasing the young population. However, taking such a step without creating economic growth is a deadly poison; because in the absence of a dynamic economy, population growth will lead to more crises. From this perspective, the insistence of the leader of the Islamic Republic on increasing the population in a situation where there are no job opportunities, investment, and progress, is a great betrayal to the country.

The prerequisite for solving the problem of retirement funds, like all major problems in Iran, is deep structural reforms and putting the country back on the path of progress, civilization, and freedom.

Notes:

1- Who are the winners and losers of increasing retirement age? Khabaronline, 9 August 2023.

2- Dimensions of Crisis in Pension Funds, Etemad Newspaper, 25 Ordibehesht 1402.

3- We have reached a point where we have to sell Khuzestan, Qeshm, and Kish to pay the pensions of retirees!, Aftab News, 12th of Ordibehesht month 1402.

4- Settlement of 210 hemmat from the previous government’s debt to retirement funds, 19 Shahrivar 1402.

5- Statistical Yearbook of the National Pension Fund for the year 1400, Law Certificate, 27 Azar 1401.