The Impact of Pension Funds Expenditures on Poverty and Inequality

The problem of poverty and inequality has been the concern of politicians and thinkers for a long time, and extensive efforts have been made to solve it. One of the most important programs designed and implemented with the aim of reducing poverty and inequality is social security programs, especially pension insurance. In Iran, most of the pensioners are covered by two pension funds: Social Security Organizations and Civil Servants Pension Fund.  The basic question is to what extent these two funds can be effective in controlling poverty and inequality?

In this study, the relationship between pension expenditures of two large pension funds in Iran, with poverty and inequality during the period 2014 to 2018 has been investigated. In this study, the type of research data is collected from panel,  and the generalized least squares method was used for estimation.

The results show that the Social Security Organization's pension expenses have a negative relationship with poverty and inequality indicators, but the Civil Servants Pension Fund’s expenses and poverty and inequality indicators are in the same direction.

The reason these two funds have different impacts on poverty and inequality can be related to the financial situation of the funds during recent years. Contrary to the Social Security Organization, expenses exceed revenues in the Civil Servants Pension Fund, and thus, and it suffers from a deficit, a large portion of which is paid by the government. This contradicts the nature of pension funds. The government allocates a portion of its welfare budget to pension funds with a financial deficit. Therefore, the actual budget of other supporting programs for the needy is reduced.