Simulation of the Balance between Resource and Expenditure in Pension Funds Based on Population Risks

Document Type : Original Article

Authors

1 Ph.D. student of financial management, Department of Financial Management, Science and Research branch, Islamic Azad University, Tehran, Iran.

2 Department of Industrial Engineering, Faculty of Engineering, Kharazmi University, Tehran

3 Associate Professor, Islamshahr Azad University, Department of Financial Business.

4 Associate Professor, Islamic Azad University, Tehran Branch, Center for Financial Management

Abstract

Background & Purpose: Pension funds are among the most important institutions that affect economic and social conditions of society. Presenting appropriate solutions to maintain the balance of these funds requires accurate knowledge of the conditions and factors affecting its status. Demographic change is one of the disruptive factors upsetting the balance between resource and expenditure of the funds. In this study, a model for simulating the balance of resources and expenditures in pension funds based on demographic risks is presented.
Methodology: In this article, first the key factors affecting the status of the Pension Fund were identified. Then using modeling with system dynamics method, both increasing crisis of spending on fund resources in the form of cause and effect model and flow mode model in Vensim software on the horizon were designed and predicted in 50 years.
Findings: The results of this study uncovered that a 23% increase in the birth rate can have a positive effect on the liquidity of the organization. However, based on the results of this study, a sharp decline in the birth rate and an increase in inflation, in the long run, will have the most negative effect on the liquidity of the Pension Fund. The amount of support and liquidity ratio in the output of the simulation model indicates the emergence of a crisis in the gap between resource and expenditure of the Pension Fund after the early decades of the Year 1400.
Conclusion: The results obtained from the simulation of the resource system and expenditures of Pension Fund is the indicator of the occurrence of a pension crisis in condition that the current trend continues in the near future. On the other hand, the study of different scenarios has shown that in the short run, increasing the deduction and the attractiveness rates has the greatest effect on the stability of the Pension Fund, but in the long run, due to the adverse effect of increasing the deduction rate on premiums, this factor reduces the attractiveness of the Pension Fund. Demographic variables will have the greatest impact on the stability of the Pension Funds.

Keywords

References

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Journal of Human Resource Management
Volume 11, Issue 3 - Serial Number 41
September 2021
Pages 71-96

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History

  • Receive Date: 09 June 2021
  • Revise Date: 12 August 2021
  • Accept Date: 02 September 2021

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