Longer working lives boosts national economic growth, among other benefits
The Indonesian government recently announced that starting January 1, 2025, Indonesian workers in BPJS Ketenagakerjaan’s pension program must wait until they are 59 to receive benefits. The amendment follows Government Regulation (PP) No. 45, which gradually raises the retirement age for program participants.
Employers will need to set their retirement age to 59 to avoid confusion. Previously, the retirement age was 56, including in the public sector. With the new law announced, workers in any sector in which the companies’ retirement age was 56 need to wait until 59 to access their pension fund. The regulation supports the government’s pension strategy and strengthens BPJS Ketenagakerjaan’s pension fund.
The increase is part of the PP No. 45, which raises the retirement age every three years. The retirement age was 56 in 2015 and increased to 57 in 2019. Hence, by 2025, the retirement age will be 59; by 2043, it will be 65. Since life expectancy is rising and more people are working in digital industries, the increase is a logical move. However, it is essential to let workers choose their retirement age depending on their health. The matter translates into should an individual be healthy, they can continue working beyond 60. Otherwise, they may need to retire earlier. Retiring earlier meant the workers would stop working before 59, yet they would still need to wait for the age to access their pension funds.
Indonesia predicts its life expectancy to reach 74 years in 2024 primarily due to improved healthcare services and affordable medical insurance from state insurer BPJS Kesehatan. These innovations have reduced mortality rates and allowed people to work longer. Thus, corporations should adjust their salaries and promotion initiatives to boost productivity and increase output from older workers.
What This Means for the Workforce
Among the benefits of increased retirement age is that it could increase national economic growth and decrease the dependence ratio. With more people in the labour market, the longer it could boost the economy. However, the catch is to produce enough jobs for the expanding workforce. The dependence ratio is the number of non-working persons dependent on each worker, which would decrease with longer working lives, relieving families of economic strain. The new retirement age meant that workers who retire earlier than 59 can only access their pension funds when they reach 59 and has no effect on retiree benefits or employer contributions. The current pension contributions are 3% of the worker’s pay, split between the employer contributing 2% and the employee contributing 1%.
The extended working years allow organisations or corporations to utilise the older workers’ experience to boost production and efficiency. Nevertheless, the government should oversee legislation for younger workers entering the workforce to determine how best to accommodate and harness their capacities. As Indonesia adjusts its retirement age to accommodate the ageing population and improve healthcare, the government desires to generate jobs for younger workers while encouraging companies to hire older workers. The next wave will raise the retirement age to 65 by 2043 to ensure program sustainability.
