HARMONIZATION IN REGULATORY FRAMEWORK FOR PENSION AND SAVINGS

VOLUNTARY VS MANDATORY

ISA RACHMATARWATA

ASSISTANT TO THE MINISTER OF

FINANCE FOR FINANC IAL

SECTOR POLICY

OUTLINE

• Introduction

• Latest development

• Future direction

3

INTRODUCTION

DEMOGRAPHIC CHALLENGES AND OPPORTUNITIES

5

30.66% 29.83% 22.32% 18.88%

64.67% 65.16% 68.45%

65.33%

4.67% 5.01% 9.23% 15.78%

2000 2010 2030 2050

DEMOGRAPHY PROFILE 0 - 14 15 - 64 65 - above

Source: United Nations, Department of Economic and Social Affairs, Population Division (2013)

• How to mitigate the risk of aging population?

• Demographic bonus time to develop savings

• Encourage bigger savings for future retirement

MULTI-PILLAR SYSTEM

6 Source: United Nations, Department of Economic and Social Affairs, Population Division (2013)

Mandatory

Voluntary

Individual

Individual Voluntary

Arranged Voluntary

Mandatory

INDONESIA PENSION SCHEME

7

Mandatory

Civil

Servants

Army forces

(Incl. Police

officers)

Private

tenured

workers

Private non-

tenured

workers

Admin:

PT Taspen

Admin:

PT Asabri

Admin:

BPJS (Old

age savings

& Pension)

Admin:

BPJS (Old

age

savings)

Arranged

Voluntary

Employer/

Financial

Institution

Pension

Fund

Individual

Voluntary

Financial

Institution

Pension

Fund

Financial

Institution

Pension

Fund

Financial

Institution

Pension

Fund

Financial

Institution

Pension

Fund

Source: adapted from OJK, 2016

SJSN / NATIONAL PENSION DESIGN No SJSN Pension

1 Scheme:

•Defined benefit with indexed career average (ICA)

• Start at 1 July 2016

• Financing scheme: Partially Funded

•Accrual rate: 1% for each year of contribution

•Minimum 15 years of contribution

•Benefit formula:

Accrual rate (X%) * number of year of contribution * average salary (ICA, indexed with inflation)

•Targeted replacement ratio (RR): 25%-30%

• ILO recommendation RR is 40%. Another 12%-15% is from Old-age Savings Program (Defined Contribution)

2 Pension Age

The first 3 year: 56 yo

•Automatic adjustment: increase 1 year for every 3 year (starting in 2019) up to 65

•Balancing the accumulating period and spending period (due to aging population)

3 Rate of contribution

• Start with 3% of fixed salary (FS)

•Will increase after considering: national economic condition and the actuarial liability of the program

(ensuring the reserves is always available for the liability, partially funded)

•Employer 2% of FS; Employee 1% of FS

4 Cost of living adjustment (CoLA) / Benefit indexation

• Inflation rate 8

PHK BENEFIT

•Another Post of Retirement Benefit

•Consist of:

• Severance

• Length of service award

•Others benefit

•Actuarial calculation

•7.46% - 11.84% of salary

9

LATEST DEVELOPMENT

192179

48 4425 25

265248

0

50

100

150

200

250

300

Jun15 Dec15 Jun16 Dec16 Feb17

TotalPensionFund

EPF-DBPF EPF-DCPF FIPF TOTAL

EPF-DBPF72.18%

EPF-DCPF17.74%

FIPF10.08%

AsofFeb17

EPF-DBPF EPF-DCPF FIPF

Note:

EPF DBPF = Employer Pension Fund - Defined Benefit

Pension Fund

EPF DCPF = Employer Pension Fund - Defined Contribution

Pension Fund

FIPF = Financial Institution Pension Fund

• The number of

Pension Fund is

decreasing

VOLUNTARY PENSION FUND

11 Source: OJK, 2017

VOLUNTARY PARTICIPANTS STILL GROWING, YET AT A DECREASING RATE

12

2,817,997

4,189,5279.4%

6.7%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2010 2011 2012 2013 2014 2015

EPF-DBPF EPF-DCPF FIPF TOTAL TotalGrowth(RHS)

Source: OJK, 2017

VOLUNTARY PENSION FUNDS ASSET

13

-

50,000

100,000

150,000

200,000

250,000

300,000

Jun15 Dec15 Jun16 Dec16 Feb17

EPF-DBPF EPF-DCPF FIPF TOTAL

IDR Billion

Source: OJK, 2017

MANDATORY (1)

14

13,045,915

13,630,149

13,000,000

13,100,000

13,200,000

13,300,000

13,400,000

13,500,000

13,600,000

13,700,000

SJSNOldAgeSavingsParticipants(active)

6,573,3488,149,941 8,890,305 8,961,367

0

456,060

2,713,964 3,191,555

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

Dec15 Jun16 Dec16 Feb17

SJSNPensionParticipants

Active Inactive

Source: BPJS Employment, 2017

MANDATORY (2)

15 Source: BPJS Employment, 2017

MANDATORY (2)

16 Source: PT Taspen & PT Asabri, 2017

FUTURE DIRECTION

INDONESIA PENSION SCHEME

18

Mandatory

Civil

Servants

Army forces

(Incl. Police

officers)

Private

tenured

workers

Private non-

tenured

workers

Admin:

PT Taspen

Admin:

PT Asabri

Admin:

BPJS (Old

age savings

& Pension)

Admin:

BPJS (Old

age

savings)

Arranged

Voluntary

Employer/

Financial

Institution

Pension

Fund

Individual

Voluntary

Financial

Institution

Pension

Fund

Financial

Institution

Pension

Fund

Financial

Institution

Pension

Fund

Financial

Institution

Pension

Fund

Source: adapted from OJK, 2016

Admin:

BPJS (Old age savings and/or Pension)

Employer/

Financial

Institution

Pension

Fund

Employer/

Financial

Institution

Pension

Fund

INTEGRATING PHK BENEFIT WITH SJSN

• Consist of:

• Severance

• Length of service award

• Others benefit

19

Should be integrated

with SJSN Old-age

savings and Pension

THANK YOU