“SSO does not have its own independent section in the government’s annual budget and over 70% of its resources are derived from monthly insurance premiums paid by employers and employees,” Lotfi was quoted as saying by IRNA.
SSO is the biggest insurance company in Iran offering policies to private sector workers as well as voluntary coverage to the self-employed.
In the year ending March 1976, the government agreed to pay 3% of the workers’ insurance premiums and this share is being redefined and set annually.
“However, over different periods of time, governments have failed to pay their share,” Lotfi said, adding that the government’s current debt to the SSO is estimated to stand at 3,200 trillion rials ($14.4 billion).
“As per the Sixth Five-Year Development Plan [2017-22], the government must pay 10% of its debts annually but this has yet to materialize due to the current economic conditions. About 320 trillion rials [$1.4 billion] of the government debt or 10% of the total debts will be paid in the current year by transferring a fraction of shares of nine state-owned companies.”
The government has recently approved a proposal to repay its debt worth 320 trillion rials to SSO by transferring shares to the organization, Minister of Cooperatives, Labor and Social Welfare Mohammad Shariatmadari said on July 9.
He did not provide further details nor say which companies will be involved. However, inquiries by ILNA show the Iranian Tobacco Company is one of the companies.
Iranian Tobacco Company was established in 1937 and was fully owned by the government until 2013 when part of its shares was sold to Iran Steel Pension Fund.
The oldest tobacco company in Iran has 81 production lines and is capable of producing 40 billion cigarettes annually and meeting 50% of the market demand.
According to ILNA, other companies in the list are South Aluminum Corporation (SALCO), Damavand Petrochemical Company, Heavy Equipment Production Company (HEPCO), Iran Tourism Development Corporation, Imam Khomeini Oil Refining Company of Shazand, Jajarm Alumina Plant, Zarshouran Gold Mines, the Mining Industries Development Company and Machine Sazi Tabriz Group.
Shariatmadari hoped that the move would help SSO secure new resources to fulfill its financial commitments.
The government now owes billions to the organization that has more than 43 million people (or 57% of the population) under its coverage.
SSO will increase its minimum pension payments by 26% to reach 19.11 million rials ($86) as of the month ending July 21, Banafsheh Mahmoudian, a senior official with the organization, said last month.
The payment to retirees of other pay levels (above the minimum) will rise by 15%, plus a monthly fixed sum of 1.64 million rials ($7.38), the Islamic Republic of Iran News Network quoted Mahmoudian as saying.
Hard Hit by Covid-19
The Social Security Organization, Iran's largest pension fund, was hit particularly hard by coronavirus pandemic because on the one hand, a majority of its members are workers of coronavirus-hit industrial enterprises, services and guilds, and on the other, it has to reimburse hospitals and healthcare providers for virus-related treatment costs, Hojjat Mirzaie, deputy minister of cooperatives, labor and social welfare, said recently.
The decline in SSO revenues stems from three pathways. First, it is to blame on the decline in income from premiums. Due to three-month premium payment extensions offered to distressed businesses by the National Coronavirus Headquarters, SSO’s resources have been exhausted but expenses continue to rise, he told the Persian-language weekly Tejarat-e Farda.
The second reason behind the depreciation in SSO revenues is the impact of slacking labor force and the recession that has engulfed the services sector. Self-employed jobs have either halted their activities entirely or reduced their presence in the market to the minimum level, following the spread of the coronavirus disease, Covid-19. Some of them have let go of a part of their staff.
Mirzaie noted that consequently, premiums paid by these businesses have dropped dramatically.
“The third factor affecting SSO’s finances is the sudden surge in the number of the unemployed. Before the coronavirus, around 250,000 were on the dole. But now around 800,000 have applied for unemployment benefits. The government has pledged to pay 50,000 billion rials [$225 million] from the National Development Fund of Iran to SSO as unemployment insurance,” he said.
“The Social Security Organization accounts for nearly 10% of treatment services in Iran. At the peak of coronavirus, almost all hospitals and clinics related to the organization were exclusively offering coronavirus treatment services. In fact, they had stopped all common surgeries and the policyholders were being referred to private-run hospital. That has also resulted in increasing indirect costs for the organization.”
However, estimates show, the pandemic has made no major dent in other pension funds. For instance, the premiums of Civil Servants Pension Organization, which is the second largest pension fund in Iran, are paid by state-run organizations. Its expenses have risen mainly because of the unfortunate surge in pensioners’ deaths and the payment of death benefits to beneficiaries.
Noting that macroeconomic variables are always effective on the performance of pension funds, the deputy minister said in a recession, employment rate falls and new premiums also decline.
“Industries, in which pension funds have invested such as tourism and transportation, were badly hit by the lockdowns. The impact of the decline in oil prices on pension funds has also been considerable. Iranian pension funds are among major shareholders of petrochemical industries that were considerably hurt by the decline in oil prices. Prices of petrochemical feed have remained unchanged but the demand for their products has dropped significantly. On top of that, exports of these products have been hobbled by coronavirus restrictions. The same has been true about the steel industry,” he said.
Most investments by the Ministry of Cooperatives, Labor and Social Welfare’s pension funds are concentrated in petrochemical, steel, tourism, transportation, pharmaceutical and mining sectors. Some of these industries were directly hit by the virus like tourism and some were indirectly affected by the outbreak of the disease like steel and petrochemicals.
However, disinfectant manufacturers and pharmaceutical industries experienced a boom in their businesses and exports. Food industries, where Civil Servants Pension Organization has made great investment in milk production, faced a two-faceted reality: they had lost their export markets, chiefly Afghanistan and Iraq, due to the closure of borders whereas demand has improved significantly at home.
Mirzaie noted that uncertainty about what the economic landscape will look like in the future is the biggest threat of the coronavirus.
“Although Iran opened up its economy much sooner than other countries and the shutdown period was quite short, demand for goods and services, namely transportation, tourism, hotels and restaurants, is still lackluster. Investors in these industries might incur irreversible losses from the crisis," he concluded.
With 14 million primary insured persons and 3.7 million pensioners, SSO covers more than half the Iranian population.
SSO’s Research Institute put the estimated losses inflicted by the outbreak of the coronavirus on SSO at between 230,000 and 510,000 billion rials ($1-2.3 billion).
SSO is a nongovernmental organization solely financed by contributions made by the insured (7%), the employer (20–23%) and the government (3%).
Social protection is also extended to self-employed workers who voluntarily contribute between 12% and 18% of their income, depending on the degree of their coverage.