Companies in Indonesia Still Have Option to Provide Pension Plan and Establish Pension Funds

Companies in Indonesia still have the option whether they will provide Pension Plan for their employees or not, at  least until 2014. It not a mandatory regulation, not yet. So it is still up to their company management own judgement to decide what best for the employees and the company.

However, things will change soon when the Labor Social Security Body has function effectivlye in 2014 or 2015 the latest. By then, the employer has to register their employee for Social Security including pension plan as regulated by Social Security Law 40/2004 and Social Security Body Law 11/2011.

Currently we can only guess and can not discuss that much in detail, because the government regulations to implement those law has not yet been announce. With the Pension Funds Law 11/1992 still in effect, the companies or employer still has the freedom to choose whether they will provide pension plan to their employees or not. If  they decide to do so, they still have the option whether they will establish their own Employer Pension Funds or join another Pension Funds. However, if they choose to establish Employer Pension Fund, then they will be bound and responsible by regulations to make sure the Pension Fund can deliver the pension benefit promised. The Employer Pension Funds only allowed to manage one type of Pension Plan either :
– Defined Benefit Pension Plan (PPMP), or
– Defined Contribution Pensiona Plan (PPIP).

If they choose to join other Pension Funds, it can be another Employer Pension Fund that willing to accept them or Financial Institution Pension Fund established by life insurances or banks. Consequently, they have to follow the other pension fund regulation.

In recent years, many companies has preferred Defined Contribution Pension Plan for their employees then the Defined Benefit Pension Plan. Some of them that already have Defined Benefit Pension Plan even make a new policy to for their new employee only to join Defined Contribution Plan. So their obligation for Defined Benefit Plan is limited to their previous employee only.

The regulator (i.e. Pension Funds Bureau) has mentioned in their 2010 Annual Report that 11.69% of Employer Pension Fund managing Defined Benefit Pension Plan has stopped registration for new member. In other word, new employee no longer eligible for Defined Benefit Pension Plan. In several cases, they established new Employer Pensiun Funds managing Defined Contribution Plan or simply register their new employees to Financial Institution Pension Plan.

We do not know yet for certain what type of Pension Plan in the 2014/2015 new mandatory Social Security Pension. Personally, I strongly belief it will be Defined Benefit Plan and not the popular Defined Contribution Plan, because the majority of pensioner in Indonesia is civil servants and the army. We will find out about that soon enough.

Amid the anticipation for new regulations to take effect in a couple years, this development will make sure that the number of pensioners in Indonesia will increase significantly in years to come.
A potential market for some.

😀

About Erwin Muniruzaman

just a simple mind Indonesian HR practitioner and a compensation & benefit specialist with an astronomical background

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