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Reforming Indonesia's pension system


  • Leechor, Chad


Indonesia's nascent capital markets stand to benefit significantly from a thriving pension industry. Now is the time to reform the pensions system, while it has a vibrant economy, rapidly rising income, and a young and growing workforce. The author suggests three main reforms. First, to reconsider the role of mandatory defined contribution (Jamsostek) plan. Second, to make employer sponsored pensions more attractive and affordable by: simplifying and expediting registration and approval processes, raising the retirement age; not directly taxing pensions; limiting political interference; permitting pension funds to invest abroad; use term annuities or phased withdrawals instead of life annuities; and adopting an adequate government vesting policy as a model for the private sector. The third suggested reform is to contain the fiscal burden of the civil service pension plans.

Suggested Citation

  • Leechor, Chad, 1996. "Reforming Indonesia's pension system," Policy Research Working Paper Series 1677, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1677

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    References listed on IDEAS

    1. Bodie, Zvi, 1990. "Pensions as Retirement Income Insurance," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 28-49, March.
    2. Martin Feldstein, 1978. "The Welfare Cost of Capital Income Taxation," NBER Chapters,in: Research in Taxation, pages 29-51 National Bureau of Economic Research, Inc.
    3. Boskin, Michael J, 1977. "Social Security and Retirement Decisions," Economic Inquiry, Western Economic Association International, vol. 15(1), pages 1-25, January.
    4. Davis, E.P. & DEC, 1993. "The structure, regulation, and performance of pension funds in nine industrial countries," Policy Research Working Paper Series 1229, The World Bank.
    5. Vittas, Dimitri, 1993. "Swiss Chilanpore : the way forward for pension reform?," Policy Research Working Paper Series 1093, The World Bank.
    6. Alicia H. Munnell & Frederick O. Yohn, 1991. "What is the impact of pensions on saving?," Working Papers 91-5, Federal Reserve Bank of Boston.
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