The Effects of Parametric Reforms on Retirees’ Welfare and Financial Sustainability of the Social Security Organization Pension System

Statistical facts show that Iran’s Social Security Organization (SSO) Pension System will face financial deficits soon. Therefore, a set of plan reforms, aimed at achieving financial stability, is needed. Reforms are also generally carried out at two levels of parametric and structural.

In this study, parametric reforms in terms of changes in retirement conditions and changes in pension indexation have been investigated. For this purpose, a population model for Iran has been drawn, and based on that the status of SSO members has been estimated from 2015 to 2090. Then, based on the available data, the financial stability status of the system is evaluated in two scenarios: either continuation of the existing situation or conducting the parametric reforms.

The results show that without reforms, the system’s deficit will increase over time and will reach more than 5.1 percent of GDP until 2050. In this situation, to keep the pension system stable, the contribution rate increased to 60.7% of wages, but if reforms were implemented, the deficit would be delayed until 2052.

Nonetheless another question raised, that is, how these reforms would affect retirees’ welfare. For this purpose, we define the Replacement Rate as an index which measured the welfare of retirees. The simulation shows that although the replacement rate for the whole system has decreased, but for the system members individually, the replacement rate has changed slightly, indicating that this type of reform has not had a significant effect on reducing the retirees’ welfare.