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Jakarta Post

Indonesia’s pension age hike: Who is paying the price?

While the current pension benefits (JP) program maintains ample cash flow and a strong balance sheet, it could face a deficit as early as 2038. 

Ibrahim Kholilul Rohman and Mohammad Alvin Prabowosunu (The Jakarta Post)
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Tue, January 14, 2025

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Indonesia’s pension age hike: Who is paying the price? All about money: Dozens of workers rally outside the Manpower Ministry on Jl. Gatot Subroto in South Jakarta on Feb. 18, 2022, to demand the cancellation of a ministerial regulation that postpones the retirement age. (Antara/Aditya Pradana Putra)

T

he Manpower Ministry has announced that the pension age for participants in the pension benefits (JP) program managed by the Workers Social Security Agency (BPJS Ketenagakerjaan) will be extended to 59 years, effective in 2025.

This decision, outlined in Ministerial Regulation No. 29/2015, aims to ensure the program's financial sustainability but has sparked discussions regarding its impact on future retirees.

Proponents argue that the change is necessary to maintain the JP program’s solvency, ensuring funds remain available for future generations. However, critics highlight that delaying pension payouts could cause financial difficulties for individuals who retire earlier than 59, as they will face income gaps and postponed access to benefits.

To recall, a pension fund is like a large savings plan designed to provide people with income after retirement. While working, employees and their employers contribute a portion of the employee's salary into the fund, which is then invested in assets such as stocks and bonds to grow over time.

Professional managers oversee these investments, balancing risks and returns. When employees retire, the accumulated savings and investment earnings are paid back, usually as a monthly income, helping retirees maintain financial stability.

This process requires proper asset-liability matching (ALM) to align the fund’s assets with its liabilities, which are the pensions promised to retirees. The process ensures that the returns generated by the assets are sufficient to cover the fund’s future obligations, even decades ahead.

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By carefully managing this balance, the fund maintains financial stability and ensures timely pension payments to beneficiaries.

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