Covid-19 inflicts losses on Iran’s biggest pension fund

Financial Tribune – The Social Security Organization, Iran’s biggest pension fund, was hit particularly hard by the coronavirus pandemic because on the one hand, a majority of its members work in virus-hit industrial enterprises, services and guilds, and on the other hand, it has to reimburse hospitals and healthcare providers for treatment costs, a deputy cooperatives, labor and social welfare minister said.

“The decline in SSO revenues stems from three pathways. First, it is to blame on the decline in income from premiums. Due to the three-month premium payment extensions offered to distressed businesses by the National Headquarters to Fight Coronavirus, SSO’s resources have been exhausted but expenses continue to rise,” Hojjat Mirzaei also told the Persian-language weekly Tejarat-e Farda.

“The second reason behind the decline in SSO revenues is the impact of slacking labor force and the recession that has engulfed the services sector. Self-employed jobs have either halted their activities entirely or reduced their market presence to the minimum following the spread of the coronavirus disease, known as Covid-19. Some of them have let go of a part of their staff. As such, premiums paid by these businesses have dropped dramatically.”

Mirzaei noted that the third factor affecting SSO’s finances is the sudden surge in the number of unemployed people.

“Before the coronavirus, around 250,000 were on the dole. But now around 800,000 have enrolled for unemployment benefits. Notably, the government has pledged to pay 50,000 billion rials [over $294 million] from the National Development Fund of Iran to SSO for unemployment insurance,” he said.

Masoud Babaie, an official with the Cooperatives Ministry, said in May that 12,860 billion rials ($75.64 million) have been paid to the Iranian Social Security Organization’s Unemployment Insurance Fund.

More than 820,930 people have filed for unemployment since March 13, of whom 687,911 were found eligible for unemployment benefits. Only those subject to the Labor Law, the Social Security Law and Unemployment Insurance Law will qualify for unemployment benefits.

Change in Treatment Services

Mirzaei said SSO accounts for nearly 10% of treatment services in Iran.

“At the peak of coronavirus, almost all hospitals and clinics related to the organization were exclusively offering coronavirus treatment services. In fact, they had stopped all common surgeries and the policyholders were being referred to private-run hospital. That has also resulted in increasing indirect costs for the organization” he added.

However, estimates show that the pandemic has made no major impact on other pension funds. For instance, the Civil Servants Pension Organization, which is the second largest pension fund in Iran whose premiums are paid by state-run organizations, has only seen its expenses rise due to the unfortunate surge in the number of pensioners’ deaths and consequently the costs of death benefits to the beneficiaries.

Noting that macroeconomic variables always influence the performance of pension funds, the deputy minister said, “During the time of recession, employment rate falls and accordingly, new premiums decline.”

Strain on Investment Portfolios

Industries in which pension funds had invested such as those in tourism and transportation sectors were badly hit during the lockdowns.

The impact of the decline in oil prices on pension funds has also been considerable. Iranian pension funds are among major shareholders of petrochemical industries that were terribly hurt by the decrease in oil prices. Prices of petrochemical feed have remained unchanged but the demand for their products has dropped significantly.

On top of that, exports of these products have also been hobbled by coronavirus restrictions. The same has been true about steel industry. Most investments by the Ministry of Cooperatives, Labor and Social Welfare’s pension funds are focused on petrochemicals, steel, tourism, transportation, pharmaceuticals and mining. Some of these industries were directly hit by the virus like tourism while steel and petrochemicals were indirectly affected by the outbreak of the disease.

However, disinfectant manufacturers and pharmaceutical industries experienced a boom in business and exports.

Food industries, where Civil Servants Pension Organization has made massive investment in milk production, were faced with a two-faceted reality: they had lost their export markets, chiefly Afghanistan and Iraq, due to the closure of borders whereas at home, demand improved significantly.

Mirzaei said uncertainty about what the economic landscape will look like in the future is the biggest threat posed by the coronavirus.

“Although Iran opened up its economy much sooner than other countries and the shutdown period was quite short, demand for goods and services, namely transportation, tourism, hotels and restaurants is still lackluster. Investors in these industries might incur irreversible losses from the crisis in the future,” he concluded.

With 14 million primary insured persons and 3.7 million pensioners, SSO covers more than half the Iranian population. The Social Security Organization’s Research Institute put the estimated losses caused by the outbreak of the coronavirus on SSO at between 230,000 and 510,000 billion rials ($1.35 billion to 3 billion).

SSO is a nongovernmental organization solely financed by contributions of insured people (7%), employer (20–23%) and government (3%). Social protection is also extended to self-employed workers, who voluntarily contribute 12-18% of their income depending on the degree of their coverage.