With the rapidly rising number and percentage of older persons, many countries have necessitated the rethinking of their pension systems, to ensure the financial sustainability of their government budget and the provision of welfare for the older persons.
Many researchers have been much concerned on cases on developed or advanced countries; but only few, on developing countries. However, developing countries, having much lower income, also experiencing ageing population, though not yet as severe as in the currently advanced countries.
This situation creates special challenges in public policies. On one hand, the policy on pension must be able to protect the welfare of the older persons, while the country may still face challenges of attacking poverty for the whole population. On the other hand, it must also be financially sustainable, especially in countries where income levels are still low.
It brings the issues: how can older persons in developed countries have adequate pension to maintain high quality of life at old ages without harming the financial state sustainability. Thus, how can older persons in developing countries improve their quality of life with limited state budget. Therefore, it is not easy to formulate an optimal solution to solve the problem. Even, Nagarajan et al. (2016) stated that aging population had aggravated the issue of financial sustainability and made policymakers desperate in figuring out the solutions. Thus, many scholars such as view justice and financial sustainability in protecting the older persons as a tradeoff.
The handsome pension is the dream for all citizens. With handsome pension, people can enjoy their old ages, after working during their young ages. People also dream of having “adequate” retirement income, so that, they can have freedom to do whatever they like and do not to worry how to finance their life in their old ages. People may see it as their claim to the society and/ or government after they work hard during their young ages.
This may be seen as a justice in a society. And this has been happening in many European countries, Australia, the US, Canada, Japan and South Korea. However, as people live longer and the percentage of the labor force, who should pay for the pension, then issue of financial sustainability appears.
Many studies for developed countries suggested to use define contribution through various ways such as shifting the financial responsibility to individuals, families, and communities, raising age of retirement and increasing tax or providing smaller pension. However, defined contribution created feeling of injustice to the older persons as the government abandons its responsibility. There is actually no pension, it is forced accumulated saving from the individuals themselves.
In contrast, there is limited number of studies on developing countries. There were very seldom studies that examined both justice and financial sustainability in pension system and how to solve the trade-off (Ananta, 2012). Then, it is still rare to have literatures on economics of justice and just pension system. Most economists study welfare, but not justice.
Therefore, policy makers need to aware, since Indonesia has changed a lot and has been globalizing as well. Indonesian population has been ageing. Yet, Indonesia is still a developing country, with people mostly in middle-income class. Fertility has been declining and there is a rising tendency that the smaller number of adult-children does not live with or around their parents. Filial piety has been disappearing. Furthermore, it is no longer easy to expect support from the relatives and community. The state formal protection system is also limited.
Hence, with low income, weak infrastructure, being old can become suffering for both the older persons themselves and the younger generations who want to take care of their parents/ old generations. In Indonesia, the state must provide the pension within the limit of their national income and, therefore, the state budget. The state is also still facing challenges of eliminating poverty for the whole population.
Consequently, it needs to consider a new approach of pension system. Currently, either pension system or social protection system is standing alone. We need an integrated system between pension system and social protection system. It approaches social protection system as a driver to generate healthy, independent, and productive people, regardless the age. This concept reduced cost of healthcare for the older person. Furthermore, productive ageing can give positive impact to the economy, as the older person are still able to directly or indirectly contribute to the economy.
This approach focuses on the prevention of the events which need financing. It deals with how to make people healthy so that the state does not pay for treatment of sickness. It is not only caring the current older persons, but an approach to generate active, healthy and both physically and financially independent individuals.
Therefore, this is an approach for all individuals in any of ages. A program that aims to provide sufficient nutrition since individual is an embryo. Hence, the individuals are able to be born and grow as healthy people. Then, it continues by serve them with adequate education and skill. By that, individuals have capability and competency to generate income and finance their lifetime consumptions. At the end, people will retire with dignity, pride and solve the trade-off as well.
The writer is a senior analyst at directorate general of budget, Ministry of Finance.
Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.