The policy of change in replacement rate and determining the optimal strategy of parametric reforms of the Iranian Social Security Organization

Loqmani Devin, Esmail; Ahmadi Shadmehri, Mohammad Taher; Hoshmand, Mahmood; Mahdavi Adeli, Mohammad Hosein

doi:10.22034/qjo.2023.381399.1299

The policy of change in replacement rate and determining the optimal strategy of parametric reforms of the Iranian Social Security Organization

Document Type : Original Article

Authors

Esmail Loqmani Devin

Mohammad Taher Ahmadi Shadmehri

Mahmood Hoshmand

Mohammad Hosein Mahdavi Adeli

department of economics, Ferdowsi University of Mashhad. PhD candidate social security organization, Farooj branch, administrative affairs supervisor.

10.22034/qjo.2023.381399.1299

Abstract

Introduction: Changes in pension policies in the world as a result of financial instability in pension funds are common in recent years. The social security pension fund is not exempt from this phenomenon and according to the statistics, it is facing the problem of financial instability. The low retirement age and the generous formula for determining the pension, emphasize the need for parameter reforms in the short term.
Purpose and method: The purpose of this research is to present the optimal strategy of parametric reforms and to investigate the effect of reducing the replacement rate on the optimal values of the contribution rate and the normal retirement age in the framework of Automatic Balancing Mechanisms models. The analysis and evaluation of data has been done based on the optimization results of the nonlinear model in the MATLAB software environment using the genetic algorithm.
Results: The findings of the research indicate that the financial stability of the social security fund depends on a 9% increase in the contribution rate and an increase in the normal retirement age of men and women by 5.02 years in the next 20 years. Adopting the policy of reforming the contribution rate and retirement age along with a 10% reduction in the replacement rate can slow down the process of increasing the insurance contribution rate and retirement age by improving the liquidity of the fund. Thus, the contribution rate increases up to 8% and the retirement age up to 3.87 years.

Keywords

pension system

parametric reforms

automatic balancing mechanisms

retirement age

contribution rate