Reforming Indonesia's pension system
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.
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