Development of an Interpretive Structural Model for Key Drivers of Financial Sustainability in Pension Funds

Objective: The study and structuring of effective drivers in problem-solving or system improvement have great importance. Understanding the relationships between stimulating factors in a complex system and identifying internal relationships greatly helps establish order in relationships between elements and make better decisions. So far, there have been few scientific research studies in the field of financial sustainability of pension funds that have focused on identifying the effective drivers of pension fund financial sustainability holistically. Additionally, the internal relationships among the influential factors on pension fund financial sustainability and the way and extent of their impact have not been examined. The use of interpretive structural modeling can significantly assist in prioritizing and analyzing the impact of drivers on each other.

Method: When research is conducted with the intention of practical application and solving a problem, it is considered applied research. Therefore, due to the use of its results as a means to address the financial issues of pension funds, this current research is considered applied research from an objective perspective. In terms of execution, it is field-based. The research is of a mixed method, meaning it is composed of both qualitative and quantitative components. In terms of data collection, it is conducted in a real and unaltered manner, and it falls under the category of descriptive (non-experimental) research, specifically survey and exploratory research. In this research, key drivers were identified through interviews with experts and using the best-worst method. Then, by employing interpretive structural modeling, the relationships between drivers were identified, and the degree of influence and dependence of the drivers were determined using structural analysis.

Findings: The research findings indicate that the identified key drivers are classified into four levels. The existence of economic sanctions and tensions is the most influential driver, directly affecting two drivers: population growth rate and growth rate of employed individuals at the third level. Responsiveness and reporting quality to program members and stakeholders, automation and substitution of robots for workers, independence of funds from the government, the presence of appropriate reporting standards, diversity of retirement plans, commitment to transparency and accountability are drivers at the second level. Timely debt repayment by the government, the possibility of fund investments in foreign markets and vice versa, gross domestic product growth, balance in employer-employee relationships, innovative management approaches, prescription of fund resource investments in specific and low-yield securities, and the efficiency of the banking system are the remaining seven influential drivers at the first level.

Conclusion: in a system with this level of complexity, any decision-making and planning should be done comprehensively and holistically. What is evident is that the ability to change the the trends of these drivers is generally beyond the capacity of pension funds. Funds should be prepared to face any potential threats when formulating strategies to achieve sustainability, which may disrupt their performance. Changes in each of these drivers will have different effects depending on the socio-economic structure. The most important factors, such as macroeconomic variables and international sanctions, should always be taken into account. The findings indicate that the effects of economic sanctions have had a significant and negative impact on the unemployment rate and the informal sector's contribution to the Iranian economy, as well as a significant and positive impact on the inflation rate, the agricultural sector's contribution, and taxation. The volatility of the macroeconomic environment has shown an influence on women's fertility rates, where income growth has a positive effect on fertility. Furthermore, economic growth has provided a basis for reducing managerial discretion in corporate profit reporting and improving the quality of reporting. On the other hand, sanctions, along with increasing political instability, can create ambiguity in the future political system and consequently have adverse effects on the country's trade and financial relations, domestic and foreign direct investment, and lead to economic instability, thereby affecting the labor market of that country. The consequences of sanctions result in increased transaction costs and a less productive use of available resources. This particularly holds true in the labor market, as workers may shift from the formal to the informal sector based on their expected job prospects. Studies indicate that trade shocks are associated with changes in informal employment. Contraction in both imports and exports can have a negative impact on the labor market of the sanctioned economy, leading not only to a reduction in employment in import and export industries but also to a reallocation of the workforce across various sectors. From a governance perspective, ensuring the sustainable financial management of pension funds requires policymakers to consider the effects of drivers in their short-term and long-term planning and legislative processes in various social, economic, and political domains. Changes in each of these drivers will have different effects depending on the socio-economic structure. Economic instability, high risk, and uncertainty regarding economic policies impact the performance of funds and, in addition, create tensions that reduce the level of investment and sustainable growth. Another important aspect that should be considered by governing bodies is demographic changes. The decline in birth rates in the coming years can lead to a decrease in the working-age population (reducing the support ratio as a key indicator of sustainability) in the coming decades. On the other hand, the current workforce is reaching retirement age while life expectancy has increased in recent years. This poses significant commitments to pension funds. The governance structure, accountability, and reporting of pension funds are heavily influenced by government policies and should be reviewed and modernized, similar to other countries, as one of the key factors.