FIONA STEWART World Bank

Global Pension Fund

Development + Impact

Lessons for Indonesia

OUTLINE

• Trends pension systems around world

• How does Indonesia compare?

• Ways to encourage pension fund growth

• Pensions + economic development

GLOBAL PENSION SYSTEMS

Source: World Bank

INDONESIA

DEMOGRAPHIC PRESSURE

Source: World Bank

PENSION REFORM TRENDS

Source: World Bank

PENSION MEASURES

INDONESIA

Source: World Bank

ADEQUACY VS. STABILITY

Source: World Bank

COVERAGE

Source: World Bank

COVERAGE GLOBALLY

Source: World Bank

INFORMAL SECTOR

INFORMAL SECTOR

PESNIONS + DEVELOPMENT

• Strong theoretical argument – pension funds asset growth

spurs capital market development (as source of long-term

financing) which fuels economic development

• Evidence from some countries that this has / can work

(particularly in Latin America, also examples in Asia – Spore/

Malaysia – and happening in Africa- Kenya leading)

• Put also plenty of disappointments (particularly in Eastern

Europe)

PENSIONS + DEVELOPMENT

DEVELOPMENT NEEDS

Annual Investment Needs Developing

Countries

Meet 2030 SDG

$3.9tn= Need

$2.5tn= Gap

$1.4tn= Spend

Source: World Bank

Pension Fund AUM

Source: OECD

PENSION PORTFOLIOS

Source: OECD

INDONESIA PORTFOLIOS

Others

0.92%Time Deposit

8.98%

Mutual Fund

10.39%

Bonds and Sukuk

11.72%

Stocks

18.36%

Government

Securities

49.63%

Portfolio of Social Security FundsExc. Taspen and ASABRI

Others

1.95%

Building

1.30%Land

2.28% Land and Building

3.90%

Direct Investment

4.95%

Mutual Fund

7.60%

Time Deposit

11.72%

Share

14.93%

Bonds and Sukuk

25.79%

Government

Securities

25.59%

Portfolio of Occupational Pension Funds

Bonds

57.93%Equity

17.18%

Others

14.97%

Cash

9.92%

GLOBAL FUNDS AVERAGE

Source OJK Data by June 2018

CHALLENGES

• Regulation

• Investment Opportunities

• Capacity

REGULATION

•Overly restrictive asset class limits

•Relative return guarantees

•Focus on short-term returns / volatility

•Short-term performance measurement

•Switching

•Early Access

Short-term

Long-term

REGULATION INDONESIA

•Prescribed/ minimum holdings

•Performance measurement (1 year vs. discount factor)

•No realized investment losses

•ALM vs. cashflow

•Withdrawals

INFRASTRUCTURE

INFRASTRUCTURE

INFRASTRUCTURE

Project Risk

Investor Risk

Appetite

TRANSFERING LESSONS

COLOMBIA

KENYA

LESSONS

• Capital market instruments complex to create

• Easier to go to banks

• Need to make space for local currency

financing

• Bring pension funds in at START of project

HOUSING

MEXICO

GOVERNANCE + INVESTMENT

Source: World Bank WP (OECD Data)

LESSONS FOR INDONESIA

•Think holistically – pension pillars / products should compliment not compete

•Innovative programs / approaches needed to reach informal sector

•Regulation should support long-term investment

•Create investment instruments to meet pension fund needs

•Ensure strong governance and oversight

FURTHER INFORMATION