Jakarta, The PRAKARSA - The research and policy advocacy institute PRAKARSA together with the Population Research Center of the National Research and Innovation Agency (BRIN), and The Conversation Indonesia held a Webinar discussing pension security in Indonesia. On Thursday (26/9/2024). This event was attended by various experts and practitioners who discussed important issues related to the pension system in Indonesia.
In the opening session, Yanu Endar Prasetyo from the Population Research Center of BRIN as the discussion moderator said that pension security is a relevant issue for everyone. "We will all grow old, and retirement is inevitable. How is the pension system in our country? Is it ideal?" said Yanu.
Nawawi, Head of the Population Research Center of BRIN, provided an overview of the importance of pension security. He said, "A safe and comfortable retirement is a dream for all of us. Indonesia has entered the category aging society, where the number of elderly people has entered the WHO minimum limit, namely reaching 10,48% of the total population, so actually we on the track to be aging society," explained Nawawi.
Meanwhile, member of the National Social Security Council (DJSN) Subiyanto on this occasion also conveyed the importance of a sustainable social security system in Indonesia. According to him, some of the main challenges faced by the National Social Security System (SJSN) are an aging population, climate change, and digitalization that affects productivity.
Subiyanto in his presentation also emphasized the need for principles good governance, such as transparency, accountability, and participation, in the management of social security programs. It is also important to expand the scope of social security to include informal workers and vulnerable groups, and to create inclusive and adaptive infrastructure.
"Although there has been progress in health and pension coverage, there are still many problems that hinder the effective implementation of SJSN. Low participant coverage, ambiguous regulations, and lack of law enforcement are significant challenges. Therefore, there is a need for data integration and interoperability in the social security system to improve the efficiency and effectiveness of services," said Subiyanto.
Putut Ardi from the Ministry of Finance highlighted the opportunities and challenges in implementing pension programs in Indonesia, including low worker income, minimal participant coverage, and relatively low pension program assets compared to other countries.
Putut emphasized the importance of sustainable and affordable pension programs to protect people from poverty in old age, as well as maintain purchasing power during retirement. He also highlighted the urgency of pension reform amidst the demographic transition, where the elderly population continues to increase and the working age population is expected to increase until 2045. "The recommendation from the World Bank and ILO to adopt a multi-pillar pension system is one solution, although challenges such as low financial literacy and harmonization with post-employment rights still need to be overcome for reform to be effective," Putut explained.
Ibrahim Kholilul Rohman from the Indonesia Financial Group (IFG) Progress said that the challenge faced by Indonesia in implementing a safe and comfortable pension guarantee system is that the portion of pension fund contributions is still very small compared to other countries and compared to its potential.
“The challenge lies in the chicken-and-egg problem between contribution levels and income. Without continued increases in income, increasing pension contributions will be difficult,” Ibrahim explained.
Ibrahim further said that another challenge is effective asset and liability management, especially for defined benefit programs. (defined benefits). This requires a strong investment strategy, but pension funds often lack credible investment and actuarial experts. “Without proper preparation, Indonesia’s pension funds are at risk of experiencing significant future deficits due to the imbalance between claims and contributions, coupled with a growing elderly population,” he said.
Victoria Fanggidae from The PRAKARSA explains that informal sector workers in Indonesia face difficulties in obtaining pension protection due to several factors, including the high number of informal sector workers in the labor market, low awareness of the importance of pension programs, and limited access to social security programs.
“Most informal workers, especially women, do not have adequate financial preparation for retirement, with less than 15% having a pension fund. In addition, social norms that place financial responsibility on men result in women being less likely to prepare for retirement early, while distrust of insurance institutions is also a barrier for them to participate in pension programs,” Victoria explained.
According to Victoria, to increase access and participation in pension programs for informal sector workers, it is necessary to implement an inclusive and tax-financed basic pension, simplify the calculation of contributions for self-employed workers, and subsidies to help pay contributions. "In addition, it is important to provide flexibility in the period and amount of contribution payments, as well as increase literacy and education about the importance of pensions. Exploring a mutual cooperation scheme can also be an effective option, considering that this model is already familiar among informal workers," concluded Victoria.
