Jakarta, IndonesiaSentinel.com — The Indonesian government is preparing to launch a new program that will deduct wages from workers’ salaries for additional retirement program savings. This initiative aims to improve the financial well-being of workers during retirement.
1. Mandatory and Voluntary Pension Contributions
The government is introducing a pension program that will include both mandatory and voluntary contributions. The program, outlined in a forthcoming Government Regulation (PP), seeks to increase the replacement ratio—the portion of a worker’s salary received in retirement.
“There’s an initiative for a mandatory and voluntary pension program, which will be regulated by the upcoming PP to enhance the replacement ratio,” said Ogi Prastomiyono, Executive Head of Insurance Supervision at Indonesia’s Financial Services Authority (OJK).
2. Income-Based Participation
Under the proposed regulations, employees earning above a specified income threshold will be required to contribute part of their salary to the supplemental pension plan. While additional, the contributions will be compulsory.
“Workers earning above a certain threshold will be asked to make voluntary, yet mandatory, contributions. This will be covered in the new regulation,” added Ogi.
3. Additional but Mandatory
Though labeled as a supplemental plan, this program will be mandatory for workers and will exist alongside existing deductions for the BPJS Ketenagakerjaan, Indonesia’s social security program for workers.
“The new pension program will be an additional but required deduction beyond what’s already being contributed to BPJS Ketenagakerjaan,” Ogi clarified.
4. Private Administrators for the New Pension Plan
Unlike the current BPJS Ketenagakerjaan system, the new pension plan will be administered by private entities such as Employer Pension Funds (DPPK) or Financial Institution Pension Funds (DPLK).
“The mandatory supplemental pension will not be handled by BPJS TK but instead by private pension funds like DPPK or DPLK,” said Ogi.
5. Raising the Replacement Ratio
The International Labour Organization (ILO) recommends a 40% replacement ratio, meaning retirees should receive at least 40% of their working income. Indonesia’s current ratio is far below this benchmark, at just 15-20%.
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“Indonesia’s current replacement ratio is still low, around 15-20%,” Ogi noted, emphasizing the need for the new program to raise this percentage.
This initiative is expected to provide better financial security for Indonesian workers in retirement, addressing the gap in retirement income.
(Ray)
