Coronavirus: Implications for Iranian Pension Funds

EghtesadOnline: As the human costs of COVID-19 pandemic continue to rise, the virus is also taking its toll on the economy.

News ID: ۷۸۵۴۶۵

04 April 2020

Analysts expect to see a negative impact on all sectors of the economy, from business shutdowns to downturns in investment and consumer spending, Financial Tribune reported.

Majlis Research Center, the research arm of Iranian Parliament, has published a new report on how the spread of the virus, deaths and unemployment resulting from it may affect the already-troubled Iranian pension funds.

It has developed three scenarios on the estimated costs the virus-related fatalities and unemployment might impose on pension funds.

Field studies have found that the average age of mortality among Iranians is 50. This is while retirement age is not the same for 24 pension funds of 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 the Islamic Republic of Iran Broadcasting, oil industry, banks, Central Insurance of Iran and municipalities).

However, their average retirement age is 55.3. Those who died from COVID -19 were expected to retire by March 2025, suggesting that they passed away five years sooner in their working lives, putting forward the date of funds commitments.

The parliamentary think tank forecasts 1,000 deaths and 100,000 unemployed people that will impose 7,180 billion rials ($46 million) on pension funds in its optimistic scenario. Nearly 6,080 billion rials ($38.9 million) of this amount must be paid next year (March 2020-21).

As per a moderate scenario, there will be 2,000 deaths and 150,000 lost jobs that will impose a burden of 1,800 billion rials ($75.5 million) on pension funds. About 9,260 billion rials ($59.3 million) must be paid next year.

The worst-case scenario relies on the assumption that the virus will kill 4,000 people and cost 200,000 jobs. The financial burden will be an estimated 18,550 billion rials ($118.9 million), of which 12,770 billion rials are due next year.

The average pension benefit the Civil Servants Pension Fund paid this year (March 2019-20) was 27 million rials ($173) per head monthly. The fund has 1.4 million policyholders.

The average pension benefit the Armed Forces Pension Fund paid this year was 31 million rials ($198) per head monthly. The fund has 700,000 policyholders.

The average pension benefit paid by the Social Security Organization this year was 19 million rials ($121) per head monthly. The fund has 13.9 million policyholders.

The average pension benefit paid by the Civil Servants Pension Fund and Rural and Nomadic Insurance Fund this year was 14 million rials ($89.7) per person monthly. The fund has 1.6 million policyholders.

There are more than 17.6 million policyholders in total. The average pension they would receive if retired is around 20 million rials ($128.2) per person monthly this year.

Dire Financial Conditions

Economists have time and again warned about the dire financial conditions of pension funds in Iran and that they are likely to go under in the not-too-distant future.

The costs imposed by the bloated workforce of some companies have strained pension funds’ finances, according to deputy minister of cooperatives, labor and social welfare, Hojjatollah Mirzaei.

He noted that the retirement age in other countries is between 60 and 65 whereas in Iran people call it quits at the prime age of 40 or 50.

The wife and children of deceased pensioners continue to enjoy social security benefits and this has prolonged pension plans up to 90 years, he added.

Rasoul Khezri, a member of Majlis Social Commission, was quoted as saying in 2018 that out of the 20 funds paying pensions to the retired populace in Iran back then, 18 were in a state of bankruptcy.

Considering retirement funds as one of the main challenges facing the country, the official added that the current insurance purchaser/pension seeker ratio is 5.6, even 2 for some funds, whereas the desired ratio for a functioning fund is at 6.5.

According to international standards, the ratio of pension receivers to the workforce that contributes should be 1:6 whereas in Iran pensioners outnumber contributors by 1:0.9 or 1:0.5, Khezri said.

For alleviating the issue, Majlis Social Commission introduced a plan for increasing the gains of pension providers by making them invest their money in lucrative markets, such as the stock market.

According to Khezri, all of the pension providers in Iran were in a state of bankruptcy, with the exception of Social Security Organization, and, to some extent, the fund of banks.