An Alternative for Social Security Pension Fund in Iran: Modified NDC

Fast aging and slow economic growth are major concerns of public pension funds with defined benefit-pay as you go (DB-PAYG) scheme. To mitigate this trend, many countries have made efforts to maintain the fiscal sustainability of public pension systems through parametric reforms, while some other countries have attempted to resolve this problem through structural reforms, like adopting new pension schemes such as: notional defined benefit (NDC) and defined contribution (DC). In this paper, we show how to apply an NDC scheme to social security pension fund of Iran, arguably one of the aging countries in future. Particularly, we introduce modified notional defined contribution (Mod-NDC) which is based on NDC. Finally we assessed the performance of these schemes in long-term. After simulation, it is shown that new introduced scheme can reduce the financial instability caused by demographic and economic factors, also it can reduce frequent law-involved reforms have often caused political controversy, but it is necessary to have a pre-reserved fund in countries such Iran or we have to reduce the income increasing rate that it unfortunately leads to decreasing general welfare.