Sri Mulyani Explains The Causes Of Low Retirement Protection For Indonesian Residents

Minister of Finance, Sri Mulyani. (Photo: Doc. Antara)

JAKARTA - Minister of Finance (Menkeu) Sri Mulyani said the coverage of pension protection for Indonesians is still very small.

He explained that the low coverage of pension protection is inseparable from the four challenges faced by the pension fund industry in the country, namely low participation, low contributions, less than optimal governance and investment policies, and problems with early withdrawals.

The low participation in the pension system is reflected in the coverage of participants from formal workers which is only 40.2 percent of Indonesia's 53.1 million formal workers, even for informal workers participation is almost non-existent or very small.

Sri Mulyani said that the low level of pension protection can also be seen from the current minimum contribution, namely the mandatory contribution for the pension program is only 8.7 percent of the national security system and only eight percent for the pension program of state administrators.

"It should be noted that the eight percent contribution for state administration is calculated based on the basic salary, which is actually only part of the actual take home pay," Sri Mulyani said as quoted by Antara, Monday 30 May.

He said this condition would lead to a small replacement ratio when workers reach retirement age, far below the standard ratio of 40 percent.

On the other hand, a strong pension system cannot be separated from governance issues, both institutional governance and investment policy governance.

Good governance will result in the implementation of an efficient, effective, and reliable pension program.

In addition, the Minister of Finance added, a good investment policy can increase the resilience of the pension program and ultimately increase the pension benefits that can be enjoyed by participants.

The design of a robust pension system should ensure that pension benefits can be provided to participants upon reaching retirement age.

"To answer all these challenges, the draft pension system reform in Indonesia is expected to achieve an optimal balance between adequacy, affordability, and sustainability of pension protection," said Sri Mulyani.