The Effects of Population Aging on the Future of Iran's Pension System

Iran is one of the countries where its pension system is financed by the pay-as-you-go methods. One of the main problems of this method is the changes in the ratio of the active population to the retired population, which is constantly decreasing in Iran. In fact, Iran is exposed to population aging and needs to plan for the future. The purpose of this paper is to examine the effects of population aging on the future of Iran's pension system. For this, we simulated a 55-period overlapping generation model for the economy of Iran. The results showed that with declining population growth rates and increasing population aging, GDP will decline sharply in the coming years, and if there are no structural reforms, the pension system will face a persistent and increasing deficit. Assuming parametric reforms in the pension system, such as an increase in the retirement age, the results showed that the deficit will reach 9% of GDP in 2056, if the retirement age is increased to 55 only for women,. If the retirement age for men and women rises to the age 60, the deficit will reach 6.5% of GDP in 2056, and if the retirement age for them increased to 65 years, the budget deficit would reach to only 2% of GDP in 2061, ultimately, and then would reach to zero