The Reform And Implementation Of A New Defined Benefit Public Pension System

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INTRODUCTION With the reform and implementation of a new defined benefit public pension system, Indonesia seeks to achieve international standards when it comes to public pensions. A new 1st pillar earnings-related defined benefit scheme named Jaminan Pensiun (JPN) was officially put into place on July 1st. With the exception of the non-contributory zero-pillar program, the implementation of JPN completes the Five Pillar Conceptual Framework suggested by the World Bank (World Bank, 2008). In this paper, the adequacy, sustainability, predictability, and robustness of Indonesia’s pension scheme will be evaluated in comparison to other countries with similar pension schemes. The focus will mostly be on the new program JPN, and to a lesser extent, the old Jamsostek program Jaminan Hari Tua (JHT). DB AND DC SCHEMES Indonesia has both of these schemes implemented in the pension system. Both schemes cover only the formal sector. DC (Jaminan Hari Tua) Prior to the 2015 reform, Indonesia’s DC system was abused by contributors by withdrawing the balance long before the maturity of the fund/retirement . A reform was made so that the minimum contributory period was 10 years and a large part of the balance cannot be withdrawn until participants reach retirement age. Most individuals do not understand the actuarial component in a DC scheme. Early contributions in the accumulation period matters more compared to the latter ones. Most Individuals do not know the power of compound
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