A Survey on the Armed Forces Pension Fund; Provision of Personal Accounts System to Provide Fund Sustainability

The rapid aging of Iran’s population and its low economic growth is a major concern for Pension Funds with the DB-PAYG defined benefit-cost plan. While many countries have undertaken parametric reforms to mitigate the impact of this process in order to maintain the financial sustainability of the Fund, others have attempted to solve this problem through systematic reforms: implementation of new Defined Contributions (DCs) and Notional Defined Contributions (NDC). This article, while studying the current system of the armed forces pension fund, introduces a new retirement system for notional personal accounts and examines the long-term financial sustainability of both the DB-PAYG and NDC systems. The Monte Carlo method is used to simulate retirement systems. Simulation results show that the proposed system can mitigate the effects of economic and demographic changes and reduce the armed forces pension fund commitments by at least one-third. Applying this system requires capital or government budget inflows or decreasing the increasing rate of pension salaries which will result in pensioners’ welfare reduction.