Volume 21, Issue 4 (12-2026)
J. Mon. Ec. 2026, 21(4): 0-0 |
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ofoghi R, Mahmoudvand R, Kazemi , S M M, mojtahed H. Rethinking The Pension Plan and Longevity Risk Challenge: A Simulation-Based Study Using the ILT 1400 Mortality table. J. Mon. Ec. 2026; 21 (4)
URL: http://jme.mbri.ac.ir/article-1-775-en.html
URL: http://jme.mbri.ac.ir/article-1-775-en.html
Abstract: (38 Views)
Abstract
Purpose: The Iranian pension system faces serious financial challenges due to the dominance of Defined Benefit (DB) schemes, which generate persistent deficits as life expectancy rises. While Defined Contribution (DC) plans reduce sponsor liabilities, they shift longevity and investment risks to individuals. This study proposes a tontine-based pension system with a family guarantee period as an alternative to enhance financial sustainability while maintaining adequate retirement income.
Methodology: An actuarial simulation model is used to evaluate alternative pension designs under realistic demographic and financial assumptions. Mortality is modeled based on the Iranian Life Table 1400, and a cohort of 100,000 individuals aged 20–50 is simulated over a 30-year retirement period. Key assumptions include an initial salary of 1,000,000 IRR, an annual growth rate of 20% (for both salary and pensions), a contribution rate of 18%, and an annual investment return of 25%. Family guarantee periods ranging from 1 to 29 years are incorporated into the tontine design.
Findings: Results show that tontine-based pensions can improve long-term financial sustainability and provide closer benefits to the current DB scheme compared to DC schemes. However, the length of the family guarantee period is crucial in balancing income adequacy and financial sustainability. Longer guarantee periods increase beneficiary protection but may reduce actuarial efficiency if not properly calibrated.
Suggestions: Incorporating tontine mechanisms with flexible family guarantee periods can effectively manage longevity risk and strengthen retirement security. Policymakers should consider hybrid designs that combine risk-sharing with targeted survivor protection.
Purpose: The Iranian pension system faces serious financial challenges due to the dominance of Defined Benefit (DB) schemes, which generate persistent deficits as life expectancy rises. While Defined Contribution (DC) plans reduce sponsor liabilities, they shift longevity and investment risks to individuals. This study proposes a tontine-based pension system with a family guarantee period as an alternative to enhance financial sustainability while maintaining adequate retirement income.
Methodology: An actuarial simulation model is used to evaluate alternative pension designs under realistic demographic and financial assumptions. Mortality is modeled based on the Iranian Life Table 1400, and a cohort of 100,000 individuals aged 20–50 is simulated over a 30-year retirement period. Key assumptions include an initial salary of 1,000,000 IRR, an annual growth rate of 20% (for both salary and pensions), a contribution rate of 18%, and an annual investment return of 25%. Family guarantee periods ranging from 1 to 29 years are incorporated into the tontine design.
Findings: Results show that tontine-based pensions can improve long-term financial sustainability and provide closer benefits to the current DB scheme compared to DC schemes. However, the length of the family guarantee period is crucial in balancing income adequacy and financial sustainability. Longer guarantee periods increase beneficiary protection but may reduce actuarial efficiency if not properly calibrated.
Suggestions: Incorporating tontine mechanisms with flexible family guarantee periods can effectively manage longevity risk and strengthen retirement security. Policymakers should consider hybrid designs that combine risk-sharing with targeted survivor protection.
Keywords: Tontine, Pension, Longevity Risk, Family Guarantee, Defined Benefit, Defined Contribution, Mortality rate
Type of Study: Original Research - Empirical |
Subject:
Macroeconomics
Received: 12 Apr 2026 | Accepted: 30 Aug 2026 | Published: 20 Oct 2026
Received: 12 Apr 2026 | Accepted: 30 Aug 2026 | Published: 20 Oct 2026
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