You might think that the social insurance contributions deducted from our monthly salaries are being accumulated in the Pension Insurance Fund. If so, that is a major misconception. In reality, there is not a single tugrug left in the Pension Fund—it has been in the red and empty for many years. In other words, the Social Insurance Fund has been operating at a loss year after year and is now on the verge of complete collapse.
Three years ago, members of Parliament warned during a session that the deficit of the Social Insurance Fund could reach 16 trillion MNT by 2030, potentially leading to default within one or two years. As it stands, the deficit of the fund has already reached 4.7 trillion MNT over the past five years, according to the Minister of Labor, Family and Social Protection, L.Enkh-Amgalan.
The outdated pension insurance system is often blamed as the main “culprit” for this situation, with all the problems conveniently pinned on it. But in reality, successive political powers have exploited the Social Insurance Fund as a “cash cow” to gather votes during elections. While they may not have looted it in a literal sense, they have significantly contributed to its downfall—a fact that Minister L.Enkh-Amgalan himself acknowledges as he now seeks to “hold them accountable”.
He stated, “Our country is now facing a serious question: Will we even have a social insurance system, especially a pension fund, or not? Therefore, we are left with no choice but to implement major policy reforms. Previously, one worker’s social insurance contributions were used to pay the pensions of three retirees. Now, even the combined contributions of three workers are not enough to support a single retiree.”
This crisis stems from the distorted pension system and the laws and decisions made by politicians without proper analysis or calculation. For example, in 2022, a law was passed to retroactively calculate years of service and social insurance contributions. Based on this law, 608,000 people retroactively paid their pension insurance contributions for up to 11 years. However, the total revenue generated from these contributions amounted to only 38 billion MNT, as people mostly paid based on the minimum wage.
Out of those 608,000 individuals, over 300,000 are already receiving pensions. In other words, 38 billion MNT were added to the fund, but 1.5 trillion MNT have already been paid out in pensions to them. So what happens when the rest of them start drawing pensions? This is just one example of the populist promises and decisions made by those in power with no long-term vision. At the time, retroactively counting years of service seemed like a citizen-friendly decision, but in the long run, it has become a “dark” policy that is draining the Social Insurance Fund.
Pension fund expenditure increased by around 1 trillion MNT 
In addition to existing problems, criticism is mounting from professionals in the field that military personnel and law enforcement officers, who retire as early as age 40 or 45 after receiving 36 months’ worth of salary in one lump sum under preferential conditions, are placing enormous pressure on the Social Insurance Fund. They note that there is no other country like Mongolia where such young people are allowed to retire.
Moreover, another burden on the fund came from the regulation that followed a bill initiated by Member of Parliament B.Purevdorj, which amended the Law on Pensions and Benefits Provided from the Social Insurance Fund just before the elections. The regulation changed the basis for pension calculation from the average salary of the last seven years to the last five years. This allowed many, especially those in the private sector, to secure higher pensions by paying higher contributions during their final five working years. As a result, individuals who paid higher contributions for just five years are now receiving significantly larger pensions than those who paid steadily over 20 to 30 years—clearly an unfair situation.
Additionally, reducing the retirement age for herders is another populist political decision aimed at securing votes, which has also contributed to the current financial strain on the sub-funds of the Social Insurance Fund. Because of these few politically motivated decisions, the social insurance system has severely deteriorated, and it has become clear that the pension fund can no longer be financially sustained under the current system.
Therefore, officials now argue that major reforms are necessary. These include: returning to a seven to 10 year average salary calculation for pensions (instead of five years); stopping early retirement for military and law enforcement personnel; and setting an upper limit on the salary base used to calculate employer contributions.
The Social Insurance Fund is used to finance four main areas: pensions, benefits, unemployment insurance, and insurance for workplace accidents and occupational diseases. According to statistics from the General Department of Social Insurance, the fund’s revenue reached 5.5 trillion MNT by the end of 2024, an increase of 1.2 trillion compared to the same period the previous year. However, expenditures reached 5.4 trillion MNT—1.3 trillion more than in 2023.
The increase in expenditures was largely due to a 994.1 billion MNT increase in spending from the Pension Insurance Fund. Although the fund’s income and expenses seemed to balance in 2023 and 2024, even appearing profitable, analysts warn this does not reflect the deeper, long-standing issues. The deficit in the Pension Insurance Fund has continued to grow annually.
For example, last year the fund paid pensions to 509,500 individuals, totaling 4.6 trillion MNT—one trillion more than in 2023. In other words, the fund has only been able to continue providing pensions by receiving an annual subsidy from the government averaging 600 to 800 billion MNT. The Ministry of Labor, Family and Social Protection projects that the pension fund’s deficit could double or even triple this year.
No possibility to reduce social insurance contributions even by 1%
Social insurance and VAT have become the biggest burdens for small and medium-sized businesses, forcing many enterprises to shut down. Business owners especially criticize the fact that the social insurance premiums they pay on behalf of their employees have no impact on the actual pension those employees will receive. That is why employers continue to demand a reduction in social insurance contributions.
However, Minister L.Enkh-Amgalan continues to insist that “social insurance is a future pension savings scheme”. He recently stated, “Employees and employers together pay 20 percent in social insurance, four percent in health insurance, and 10 percent in personal income tax—a total of 34 to 35 percent deducted from wages. I understand this is a heavy burden. But it’s important to distinguish between the sub-funds of social insurance. For instance, even a one-percent reduction in contributions would result in a 261 billion MNT loss in revenue for the fund. A two-percent cut would mean a loss of 522 billion MNT.”
From this statement, it’s clear that any hope of reducing the social insurance contribution rate is off the table. The bill to reduce social insurance contributions, proposed by MP Ch.Lodoisambuu and others, has been put aside for now, with government officials stating that it’s not possible to consider such a measure at the moment.
In short, the burden of the failed insurance system from the past 35 years will continue to fall on active workers and taxpayers. While businesses are being crushed by taxes and shutting down, and the workforce is fleeing abroad, there are hardly any wealth creators left in the country. Despite the dire situation, officials continue to speak loftily about reforms, while in reality, little to nothing is being done.
What if authorities misuse remaining money again?
While the Pension Fund is facing a near-certain default, authorities are boasting that they’ve “earned the first return from investing the Social Insurance Fund’s surplus in bonds”. Under Government Resolution No. 14, 300 billion MNT from the fund’s idle surplus were invested in bonds last year. On May 19, the ministry reported that the first interest income—13.3 billion MNT—had been added to the fund.
Additionally, 700 billion MNT have been deposited into four commercial banks, earning annual interest rates of 14.2 to 15 percent. As a result, the fund’s assets are projected to increase by 105 billion MNT in 2025. In total, about 1 trillion MNT of the Social Insurance Fund’s idle surplus has been either invested in bonds or deposited in banks.
However, the public remains skeptical. People haven’t forgotten past financial disasters. Most notably, the government has still not recovered the 168 billion MNT deposited in the now-defunct Capital and Chinggis Khaan banks. The money has only been recovered in small portions, and the issue has now reached the courts and prosecutors. No one today can guarantee that this won’t happen again.
Nevertheless, the authorities are promoting themselves as if they’re growing the fund’s assets and acting like victorious heroes, which many see as tragic. Economists agree that the pension system, which has followed a distribution model since 1990, must now transition to a partially funded system. That would mean turning a portion of each individual’s contributions into actual personal savings under their name.
Internationally, pension systems often allow individuals to draw from multiple sources after retirement, making it possible to live a decent life instead of surviving from one loan to the next. For example, retirees might receive a basic pension, a bonus based on contributions made, and dividends from a private pension fund in which they’ve accumulated savings.
MP O.Tsogtgerel remarked, “In 2023, our energy sector ran a deficit of about 350 billion MNT. Yet the Pension Insurance Fund continues to silently drain more than twice that amount from the national budget. At this rate, five years from now, even the entire state operating budget won’t be enough to fund this system. Without pension reform, there is absolutely no way to reduce social insurance contributions.”

Published Date:2025-05-30