Indonesia’s Central Statistics Agency (BPS) reported that 41.75% of elders in Indonesia live in households in the bottom 40% of the expenditure distribution. This traps many elders in a cycle of poverty and economic vulnerability. This was intensified by the absence of an inclusive pension protection system, leaving only 5% of elders able to support themselves independently through pension funds.
Universitas Gadjah Mada (UGM) economist Dr. Eddy Junarsin recommended improvements to Indonesia’s old-age security system. The low pension contribution rate is one of the main reasons for accumulating insufficient retirement savings. Currently, the employee contribution for old-age security is only 1% of salary, supplemented by an employer contribution of 2% of gross salary. He suggested increasing employee contributions to 5–6% of salary, with employers contributing an additional 8–9% of gross salary.
“An adequate contribution level would be around 14–15% of gross salary. Even then, it may only be just sufficient in the future, but it would still be far better than the current system,” he said on Friday (Jun. 11).
According to Dr. Junarsin, raising contribution rates presents a serious challenge for business owners and informal-sector workers. Without access to Employer Pension Funds (DPPK), which operate through automatic payroll deductions, or Financial Institution Pension Funds (DPLK), these groups must maintain a higher degree of financial discipline. He advised entrepreneurs and informal workers to allocate 10–20% of their income to savings or investments to support them later in life.
“Entrepreneurs and informal-sector workers should set aside 10–20% of their income for retirement savings or investments,” he said.
Dr. Junarsin noted that the government can take several measures to ensure the economic security and well-being of elders in Indonesia. The government should revise regulations by increasing employee pension contributions from 1% to 5-6% of gross salary and employer contributions from 2% to 8-9% of gross salary so that retirement funds are sufficient to support workers in old age.
In addition, expanding access to clinics and eldercare facilities would greatly benefit retirees during their more vulnerable years.
The government could also provide low-interest People’s Business Credit (KUR) loans for retirees to help them start businesses after retirement. Another policy option would be to eliminate mandatory retirement ages, allowing individuals to determine their own retirement timing.
“If the government can implement these measures, workers will be much better prepared to face old age and enjoy the benefits of the work they performed during their productive years,” he said.
He believes that strengthening the old-age security system could be a key step toward breaking the cycle of the sandwich generation phenomenon that has long placed financial pressure on younger Indonesians. With a stronger pension system and government policy interventions, the financial burden on future retirees would no longer fall on their children and grandchildren.
“Being part of the sandwich generation is extremely burdensome. If government and corporate policies are improved, they will undoubtedly help retirees while also benefiting future generations,” he concluded.
Author: Jesi
Editor: Gusti Grehenson
Post-editor: Jasmine Ferdian
Photo: Magnific