The Iranian government has decided to merge 18 retirement funds in response to a budget deficit of 3,000 trillion rials (approximately $6 billion) and its increasing debt to these funds. Retirement funds in Iran are called “time bombs,” not because they are all considered bankrupt, but because they can lead to the destruction of both the economy and the Iranian society, along with bankruptcy.
For more than a decade, the Iranian regime has been dealing with the retirement fund crisis through tricks such as assigning shares, transferring factories and even lands to the funds to pay off their debts. Nevertheless, official reports show that out of a total of 18 retirement funds in Iran, 17 are bankrupt or on the brink of bankruptcy.
Recently, it has been suggested in the Seventh Development Plan that the retirement age for women in difficult and hazardous jobs be reduced to 45 years and for men to 50 years. According to experts, this proposal could be a countdown to the explosion of retirement fund time bombs.
In many countries, retirement policies are aimed at increasing the retirement age, but in Iran, the retirement age is between 45 and 53 for women and 50 to 56 for men. The low retirement age in Iran is one of the most important factors that increases the financial burden on the funds year after year.
Another dangerous factor is the decrease in the support ratio to working individuals; that is, the ratio of retirees to working individuals is decreasing. Currently, the support ratio in the national retirement fund is 0.65 percent, and in the armed forces, it is 0.83 percent, while the global average is 6 percent. (In simple terms, in a standard fund, six people must work to support one retiree.)
According to the Iranian Statistical Center, in the spring of this year, the number of employed individuals was reported as 23,577,638. With a population of nearly 88 million in Iran, the lives of approximately 64,340,000 people are dependent on the work and activities of these employed individuals.
The population-to-employment ratio in Iran is 3.7 percent, meaning that each employed person, except for themselves, must provide for an average of 3.7 other individuals’ living expenses.
Hard times for retirees
Inflation and increasing poverty threaten retirees more than any other group in Iran. Although this year retirees under the coverage of the Social Security Organization saw a 27 percent increase in their pension, and those under other funds received a 20 percent increase, this group is still under pressure due to inflation and economic difficulties.
According to unofficial reports, the poverty line in Iran has reached 300 million rials (approximately $600), while the minimum pension in 2023 was announced to be around 55 million rials (approximately $110).
There are 18 retirement funds in Iran, covering a total of 25 million retirees and pensioners. Due to the low population-to-employment ratio (3.7%), the resource crisis in these funds can affect the lives of 50 million people.
This year, a budget deficit of about 3,000 trillion rials (approximately $6 billion) has been estimated for these funds, and it is predicted that by 2026, their resource deficit will reach 8,000 trillion rials (approximately $16 billion).
The government is legally required to provide 8 to 10% of the resources of some of these funds, while some others receive funding from the general budget.
In the current year’s budget bill, the government has allocated 3,300 trillion rials (around $6.6 billion) to compensate for the budget deficit of retirement funds, which is 1,130 trillion rials (around $2.26 billion) more than the previous year.
The annual budget figures from the past decade show that the share of retirement funds in the general budget has increased from about 12% in 2014 to over 15% in the current budget.
When combined with budget deficits and the government’s debts to these funds, the severity of the retirement fund crisis becomes evident. If the current trend continues, it can be expected that within three years, five retirement funds will account for more than half of the government’s budget.
From selling islands to merger proposals
The proposal to merge retirement funds has been raised since two years ago, but due to the potential social crises, the decision to implement this plan has been delayed.
In May of this year, the controversial statement of a Ministry of Labor official that resulted in his dismissal raised concerns about the severity of the retirement fund crisis. Sajjad Padam, the director-general of the Ministry of Labour’s insurance, had said, “We will soon have to sell Qeshm and Kish islands and Khuzestan province to pay retirees’ pensions.”
His reference was to the sale of 120 islands in Greece in response to the retirement fund crisis in Iran.
Although such statements are considered a form of dissent for officials in the Islamic Republic, the speed of action to dismiss this Ministry of Labor official indicates a cover-up of a crisis that is intensifying every day.
This is happening while protests by retirees, which had somewhat subsided in the shadow of last year’s nationwide uprising, have intensified since the beginning of this year.
These days, the government is looking for a solution to cover the budget deficit of retirement funds while also considering their merger.
Among the letters found in a series of leaked documents from the Presidential Institution website, a letter dated December 26, 2022, signed by the deputy minister of intelligence and addressed to the vice president, stated that due to the “inability” of the Special Retirement Fund of the Ministry of Intelligence to pay its pensioners, “another 10 billion rials (around $20,000) should be allocated to this fund in the 2023 budget law.”
In recent years, some government officials have repeatedly reported the bankruptcy of some retirement funds. Nevertheless, this letter from the Ministry of Intelligence is another testament to the precarious situation of retirement funds in Iran.
