A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed and private companies. They are especially important to the stock market where large institutional investors dominate. In January 2008, The Economist reported that Morgan Stanley estimates that pension funds worldwide hold over US$20 trillion in assets which are the largest for any category of investor ahead of mutual funds, insurance companies, currency reserves, sovereign wealth funds, hedge funds, or private equity.
In Iran, There are 16 different pension funds which are active in this field. The oldest fund is The Civil Servants Pension Organization (C.S.P.O), while largest number of participants is for Social Security Organization Fund. Almost all of these funds are managing by the Iran`s government which leads to weak and inefficient operation and turnover. In Iran, the most prevalent procedure in pension funds is DB-PAYG which allocate the cash flow of current employees’ salaries to retired people. Although there are some advantages in using DB-PAYG, this procedure has some consequences where switching between the economic regimes could unable them to pay their commitments. For instance, in the past the salaries of current employees could compensate the commitments to the retired one, but now changing the structure of population and increasing number of old and retired people can face the pension funds with an enormous risk. Moreover, in DB-PAYG, economic indicators such as inflation has large impacts where changing in one or some of them could leads to bankruptcy of the funds. These examples actually occur in Iran (increase in retired people and inflation fluctuation) in the past years and mismanagement in these transformations turn the pension funds in almost bankruptcy situation.
So what is the solution for current situation? The most appropriate one is changing and optimizing the structure of the funds. Implementation of the DC-FF, which saves the deductions of each employee for him or herself and in the retirement period, allocate this deduction to exactly that person, or DC-PAYG, which is a combination of DB-PAYG and DC-FF, can help the Iranian funds to restructure themselves. Beside this, pension funds must establish and manage by private sectors to efficiently manage this transformation in procedures or any other changes, because it is proved that governmental sector cannot manage the financial institutions in a suitable way and knowledge and perseverance of the private sector must be deployed.
For conclusion, the pension fund industry in Iran need a real revolution and deployment of modern and international procedures. This only can be done by huge investments by the private sectors to implement the transformations, because it is not only an improvement or optimization, but it is a selection between disaster and salvation.