Additional burden: Workers at a garment factory in Bandung, Indonesia. Retired Indonesians have to live on about 20% of their working-life annual income, far below the International Labour Organisation’s recommendation of 40%. — AP
JAKARTA: Businesses have raised concerns that a planned mandatory pension programme for employees would put undue pressure on companies and eat further into formal workers’ salaries.
Financial Services Authority (OJK) head of insurance, guarantees and pension funds Ogi Prastomiyono said last week that the government was preparing an implementing regulation on the new pension rules slated for enactment next year.
The regulation would require workers earning above a certain amount to enroll in an additional pension fund programme, he said.
It would also specify the percentage of monthly wages that would be paid into the fund and would name the organisation responsible for managing the programme.
The scheme was introduced under Law No. 4/2023 on financial sector development and strengthening with the aim of expanding the financial services industry.
The OJK hopes for the pension fund to grow to around 20% of gross domestic product (GDP) by 2028 from last year’s 6.73%, according to its five-year road map.
Employees in the formal sector already face regular obligations that cut into their monthly salaries, namely to the Workers Social Security Agency, which takes 3% of formal employees’ monthly wages, and to the Health Care and Social Security Agency, which takes 1%.
Part of the payments to the former programme already go toward retirement pensions for workers.
Employers, meanwhile, must make contributions of 5.7% and 4% of their employees’ monthly salaries to the respective agencies.
Formal employees also have deductions from their monthly salaries for income tax. Shinta Kamdani, chair of the Indonesian Employers Association, said businesspeople were waiting for clarification on the details of the regulation, Kumparan reported.
The association expressed concern that there would be challenges in implementing the new programme.
“These include the issue of personal freedom for Indonesians to manage their own money, administrative complexity in verifying people’s actual income, as well as maintaining public trust in the government’s ability to manage public funds,” she said. Bobby Gafur Umar, deputy chair for industry at the Indonesian Chamber of Commerce and Industry warned on Saturday that the initiative could be counterproductive, create a greater burden for workers and further weaken already declining purchasing power.
“Amid the current drop in purchasing power, along with the Purchasing Managers’ Index falling below 50, I hope there will be no additional strain on the economy,” he told Kumparan.
Ogi of the OJK said separately last Friday that the regulation had yet to be finalised and still required approval from the House of Representatives.
He also defended the stipulation as necessary, noting that under current pension programmes, retired Indonesians had to live on about 20% of their working-life annual income, far below the International Labour Organisation’s recommendation of 40%.
The planned mandatory pension programme comes despite a previous backlash over a policy that would have forced employees to set aside a percentage of their income for future homeownership under a government agency, a programme known as Tapera. The programme would require a monthly contribution equal to 3% of an employee’s monthly salary, with the employee bearing 2.5 percentage points and the employer 0.5 percentage points.
Bhima Yudhistira, executive director of the Centre of Economic and Law Studies, told The Jakarta Post on Monday that employees already faced excessive wage deductions from existing social security programmes, leading to a decline in disposable income per capita over the past 10 years. — The Jakarta Post/ANN
