Jakarta, CNBC Indonesia – The government is currently working on a defined contribution scheme for government employees with work agreements (PPPK).

This policy will be implemented in line with the legalization of the Draft Law on State Civil Apparatus or the ASN Bill into law during yesterday’s DPR plenary session.

Minister for Administrative Reform and Bureaucratic Reform (PANRB), Abdullah Azwar Anas, revealed that the law which will replace Law Number 5 of 2014 mandates equal distribution of welfare for ASN, both civil servants and PPPK, including pension guarantee rights. So, now PPPK will have rights like civil servants.

“Regarding welfare, PPPK and ASN will be made into one system. They will also be able to retire because in the future the system will be a defined contribution,” said Anas as quoted from his statement, quoted on Sunday (3/10/2023).

Referring to the 2016 Fiscal Policy Agency’s Financial Sector Policy Center’s 2016 Pension Security and Old Age Security Program Design document for Civil Servants, it specifically states the definition of a defined contribution pension scheme, along with its benefits.

In this document, defined contribution is defined as a pension design that requires participants to set aside a portion of their income to be invested in an investment instrument and accumulated during their working period until retirement.

Furthermore, at retirement, participants can purchase an annuity product or receive periodic payments from their fund balance. The benefits received by participants are the accumulation of participants’ contributions during their work period and investment results. In this scheme, program costs are more predictable.

The document also states that funding for programs with this scheme generally uses the full funding method or is based on a percentage of accumulated contributions from participants and employers.

For your information, the ASN Bill does not specifically mention this pension scheme, because it only mandates that further provisions regarding pension security and old age security for ASN employees be regulated in a Government Regulation (PP).

According to Anas, the PP derived from the latest ASN Law will be completed in the next three months. “Later we will sort it out at the PP, including people who can be transferred for a minimum of 2 years. (How long does it take to clear it?) That’s three months,” he said.

The scheme used to provide pension guarantee rights for PPPKs is different from the current pension guarantee scheme for civil servants. Quoted from the 2022 Audited Central Government Financial Report (LKPP), the pension guarantee scheme for civil servants and TNI and Polri soldiers is a defined benefit.

Meanwhile, the funding mechanism used is Pay As You Go, which is financed from the APBN. The implication of the Defined Benefit Pension Program with Pay As You Go funding, according to the document, is that the Government pays pension benefits when civil servants enter retirement age in accordance with statutory regulations.

The long-term obligations of the government pension program based on the 2022 LKPP amount to IDR 2,950.74 trillion, consisting of obligations to Central Government employees amounting to IDR 936.57 trillion, and obligations to regional government employees IDR 2,014.16 trillion.

The long-term obligations of the government pension program can also be divided into obligations to active employees amounting to IDR 1,372.16 trillion, and obligations to retirees amounting to IDR 1,578.57 trillion.

Apart from that, the government also controls the Pension Contribution Accumulation Fund (AIP) which is collected from civil servants and TNI/Polri members which is managed by PT Taspen and PT Asabri. The AIP fund balance as of 31 December 2022 and as of 31 December 2021 was IDR 229.97 trillion and IDR 212.99 trillion, respectively.

In the 2024 Macroeconomic Framework and Fiscal Policy Principles (KEM PPKF) document, President Joko Widodo’s government plans to overhaul the pension and old-age security system for civil servants. Mainly because of the low pension benefits currently received by civil servants, and the large burden carried by the APBN with this scheme.

“The 2024 personnel expenditure policy will be directed towards, among other things […] reform of the pension security system and old age security for civil servants,” as quoted from the KEM PPKF document.

[Gambas:Video CNBC]

(haa/haa)