Why Pension Funds could face Bankruptcy Tsunami

It is noteworthy that the replacement ratio in Iran is already one of the highest in the world. According to Esmail Gorjipour, the head of the social security office at the Ministry of Cooperatives, Labor and Social Welfare, the ratio was 85% of the final salary at SSO and 87% in the Civil Servants Pension Fund (CSPF) in the Iranian year ending March 20, 2015.

In addition, the support ratio — the number of people aged 15-64 per person aged 65 or above — which normally should be around 5, is 0.93 for CSPF and 4.57 for SSO. These ratios are indicative of an imminent crisis for a majority of pension funds in Iran.

Many pundits have warned about the disastrous consequences of any deferral in taking proper and immediate action to help pension funds out of crisis, as they believe the funds are already on the brink of bankruptcy.

Indeed, the time for change is now, as correctly advised by an in-depth report on pension funds in the region conducted by the World Bank in 2005. The recommended changes and reforms, nonetheless, should be executed by introducing systematic and/or parametric modifications to pension funds. If not, the odds are that Iran will have to pay a heavy penalty by exposing itself to the risk of social and political upheaval in the foreseeable future.

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