Can Tehran Neutralize Its Pension Fund Time Bomb By Raising the Retirement Age?

Iran’s Majlis, its de facto parliament, voted to raise Iran’s retirement age on November 19. This decision comes as the government deals with the potential for pension system default that could both kneecap efforts to jumpstart the economy and reignite the economic protests that swept through Iran between 2017 and 2019.

Iranian pension funds consume 15 percent of the national budget, up from 12 percent a decade ago. Among Iran’s 17 pension funds, 15 face insolvency. While increasing the retirement age may temporarily alleviate strains on the funds, the move may also risk public discontent.

There are multiple reasons for strains on the pension system. Inflation has soared in the more than four decades since the Islamic Revolution, while the economy underperformed, the combination of which caused stagnation in real per capita income compared to pre-revolution levels. The value of savings eroded, so many retirees rely solely on their already devalued pensions. The dollar value of the minimum monthly pension has decreased to about $120, a 25 percent reduction from a decade ago. Previously, a lower retirement age coupled with modest pensions allowed many retirees to supplement their income through continued work. Raising the retirement age means many families will not be able to access the pension as supplementary income for an extended period. This constitutes a significant negative shock to the budget of lower- and middle-income households. In a country where 30 percent of population lives below the poverty line and another 30 percent hovers right above it, such a shock will have significant socioeconomic consequences, pushing more households below the line.

An aging population, a dwindling labor force, and high youth unemployment have exacerbated strains. Supreme Leader Ali Khamenei has advocated for measures to increase fertility and grow the population, though without success. The dampening impact of protectionism, corruption, a lack of commercial law, and little legal recourse for contractual disputes has diminished direct foreign investment.

There appears little possibility that the Iranian regime can restore solvency to the pension system without far more ambitious reforms to improve the economy. This, in turn, will require a willingness to compromise on fundamental ideology, worldview, and willingness to tackle corruption among some of the Islamic Republic’s most privileged institutions. Raising the retirement age is merely putting a Band-Aid on a sucking chest wound.

Faced with this situation and given its unwillingness to undertake fundamental reform, the Iranian government has several possible paths. First, the Iranian government can continue to raise the retirement age. Second, it could seek to shift the burden of pension fund rescue onto the general population by increasing taxes and fees. Third, it could inflate its liabilities away. Each of these measures would be unpopular and likely require greater force to suppress protests. Either way, a seemingly technocratic vote may herald far more unrest in the near future.

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 X @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.