August 16, 2023 | Policy Brief

Iran’s Pension Funds Are a Fiscal Time Bomb Waiting to Explode 

August 16, 2023 | Policy Brief

Iran’s Pension Funds Are a Fiscal Time Bomb Waiting to Explode 

Protests by Iranian retirees have surged this year, with demonstrations last week in several of Iran’s largest cities. Their calls to increase meager government pensions are both a cry of desperation and a stark warning of a looming societal and fiscal disaster.  

The administration of President Ebrahim Raisi is embroiled in a debate over allocating funds to pensions versus infrastructural investments, overshadowing the unsettling truth that 15 of 17 of Iran’s pension funds are insolvent. Supported by continuous governmental bailouts, the funds have become a perpetual source of friction between the government and the elderly. 

Over the past decade, Tehran’s allocation for pensions rose from 12 to 15 percent of the national budget. Hidden beneath these numbers is a profound crisis that reflects three adverse trends. First, four decades of double-digit inflation and deficient growth have left real per capita income lagging behind pre-revolution levels. Many retirees find themselves without personal savings and dependent on their monthly pensions, whose dollar value has fallen. The minimum monthly pension payment has fallen to $120, about a 25 percent decrease from where it stood 10 years ago, at roughly $160.  

Second, regime insiders have drained Iran’s pension funds either by knowing depletion or the unwitting squandering of reserves. Finally, the aging of Iran’s population has increased the number of retirees and pensioners. Retirees are also living longer, so they require pensions for longer periods than the country’s retirement system was designed to handle. Meanwhile, the active workforce that pays into retirement funds is around 23 million due to decreasing birth, employment, and labor participation rates. High youth unemployment compounds this problem, further straining available resources. 

The cornerstone of any solution to this crisis would be an economic transformation that integrates into the global economy, creating opportunities for employment and investment. Yet so long as the Islamic Republic exists, that integration will likely be impossible. 

The eradication of corruption and promotion of transparency within the pension system will also be key. Yet this too will be difficult as long as the profoundly corrupt clerical regime remains in power. One change the government can implement is an increase in the retirement age, which currently stands in some cases as low as 45 for women and 50 for men. This would be unpopular under any circumstances and could even provoke an existential crisis for the regime, which faces a perennial crisis of legitimacy thanks in part to its reliance on brute force to repress three waves of protests in recent years. 

The government could also seek population growth via increasing birth rates or net inward immigration. Supreme Leader Ali Khamenei appears focused on advocating population growth, yet without accompanying economic growth, this would backfire by ensuring increased competition over shrinking resources. Thus, an increase in the retirement age may be unavoidable. 

Today’s retirees — once the youthful supporters who helped launch the 1979 Islamic Revolution — now chant that the revolution constitutes “sedition” and is “the cause of the nation’s poverty.” As today’s youth fight to topple the Islamic Republic, perhaps the youth of yesterday will join forces with them to dismantle the regime they helped erect. 

Saeed Ghasseminejad is a senior advisor on Iran and financial economics at the Foundation for Defense of Democracies (FDD), where he contributes to FDD’s Iran Program and Center on Economic and Financial Power (CEFP). Follow Saeed on Twitter @SGhasseminejad. For more analysis from Saeed and FDD, please subscribe HERE. FDD is a Washington, DC-based, non-partisan research institute focusing on national security and foreign policy. 


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