New Retirement Age in Indonesia: What Businesses Should Do Next

The retirement age in Indonesia is evolving, with recent changes in pension age regulations impacting workers nationwide. The government is working to ensure workers can sustain their jobs while securing financial support for retirees. 

Understanding the retirement age, pension plans, and financial planning options is not just important for business owners; it’s empowering. This knowledge allows you to ensure compliance with your business and make informed decisions that can positively impact your employees’ future. 

What is the Legal Retirement Age in Indonesia? 

Starting January 1, 2025, workers in Indonesia enrolled in the pension program under BPJS Ketenagakerjaan will need to wait until they reach 59 to access their pension funds. This change follows Government Regulation (PP) No. 45 of 2015, which mandates gradual increases in the pension age in Indonesia. 

The retirement age has been increasing incrementally every three years: 

This adjustment ensures the financial sustainability of the pension scheme in Indonesia as life expectancy continues to rise. 

What Does This Mean for Employees and Employers? 

With the retirement age gradually increasing, Indonesian workers must proactively plan for their financial security. 

• Extended Work Years: Employees will work longer before receiving full pension benefits. 
• Higher Retirement Savings: A longer working period means additional contributions to pension funds. 
• Corporate Adjustments: Companies must restructure workforce planning and retirement policies. 

The Retirement System in Indonesia 

The retirement system in Indonesia is primarily based on the state-run social security program, BPJS Ketenagakerjaan, which provides pension benefits through two key programs: 

• Jaminan Pensiun (JP): A pension program designed for employees who contribute to the system. 
• Jaminan Hari Tua (JHT): A savings-based pension program for employees, offering withdrawal flexibility under specific conditions like retirement or unemployment. 

Both systems are mandatory for employees in the formal sector. 

Can You Retire to Indonesia as a Foreigner? 

Foreign nationals must meet specific requirements to retire in Indonesia. Here’s how to go about it: 

• You must be at least 55 years old. 
• You must provide proof of sufficient income or savings to support yourself during your retirement. 
• You must show proof of adequate health insurance coverage. 
• You must apply for a retirement KITAS through the immigration office. 

What Age Can You Get a Retirement Visa in Indonesia? 

Foreign nationals aged 55 or older can apply for a retirement visa in Indonesia, provided they meet the financial and health insurance requirements specified by the Indonesian government. 

Pension Regulation and Schemes in Indonesia 

Indonesia operates two primary pension fund systems designed to secure financial stability for its workforce in retirement. 

National Pension Program (BPJS Ketenagakerjaan) 

This program, managed by the Social Security Administration for Employment (BPJS Ketenagakerjaan), is mandatory for formal sector employees. 

• Contribution: Employers contribute 3.7%, while employees contribute 2% of their monthly salary. 
• Payout: Workers enrolled in BPJS Ketenagakerjaan can receive monthly pension benefits upon retirement age (59 years). The amounts are calculated based on years of contribution and salary history. 

Old Age Savings Program (JHT) 

This savings-based pension program allows employees to withdraw funds at retirement or upon specific conditions (e.g., unemployment). 

• Contribution: Employees contribute 2%, while employers contribute 3.7% of their salary. 
• Withdrawal Options: Employees can opt for a lump sum or installment-based retirement allowance. Those who don’t meet the contribution period for a monthly pension will receive a one-time payment as a retirement allowance. 

How Pension Benefits Are Calculated in Indonesia 

Pension benefits in Indonesia are calculated using a formula that considers: 

• Salary History: Higher salaries lead to more significant pension contributions. 
• Contribution Years: Employees with longer working periods receive higher pension benefits. 
• Government Regulations: The pension is adjusted for cost-of-living increases. 

For example, an employee earning IDR 10 million per month for 20 years will accumulate a significantly larger retirement fund than an employee earning IDR 5 million monthly for only 10 years. 

Are There Any Private Pension Programs in Indonesia? 

Private pension programs exist in Indonesia, providing additional financial security beyond the government system. These are voluntary and typically managed by financial institutions (DPLK or Dana Pensiun Lembaga Keuangan), insurance companies, or employer-sponsored funds. The benefits of private pension programs are: 

• Higher Retirement Fund: Accumulating savings beyond government pensions ensures a comfortable lifestyle after retirement. 
• Investment Growth: Funds are invested in diversified portfolios, potentially yielding higher returns than standard pension schemes. 
• Tax Benefits: Contributions to private pension schemes may offer tax deductions, reducing taxable income. 

How to Prepare a Retirement Fund in Indonesia for Your Employee 

Offering a retirement fund is essential for employees’ financial security and well-being. As an employer in Indonesia, it’s important to know the pension programs, investment options, and compliance requirements to help your workforce prepare for retirement. Here are some ways to assist your employees in building a solid retirement plan. 

Maximize Government and Private Pension Contributions 

Employers must register employees with BPJS Ketenagakerjaan and ensure contributions to Jaminan Pensiun (JP) for monthly pensions and Jaminan Hari Tua (JHT) for lump-sum benefits. 

To enhance employee benefits, consider offering private pension schemes (DPLK), which provide higher retirement payouts. Encouraging employees to save at least 10-20% of their salary for retirement can also help them build financial stability. 

Offer Investment and Retirement Savings Options 

Beyond pensions, employers can educate and support employees in diversifying their retirement investments. Encouraging participation in mutual funds, bonds, and property investments allows employees to grow their savings over time. Providing financial literacy programs can help employees make smarter investment choices, ensuring they have multiple sources of retirement income beyond government pensions. 

Use an Employer of Record (EOR) for Better Benefits 

Using an Employer of Record (EOR) ensures compliance with payroll, tax, and pension regulations for companies with expatriates or employees working remotely for international firms. InCorp can help employers manage retirement contributions, social security, and employee benefits, ensuring workers receive full entitlements.  

Maximize Retirement Benefits for Your Employee with InCorp 

Employers in Indonesia have a key responsibility to help employees build a secure retirement fund. By offering exemplary pension contributions, investment options, and compliance measures, businesses can help their workforce achieve financial stability after retirement. 

For businesses looking to simplify pension and payroll management, InCorp Indonesia (an Ascentium Company) can assist you with the following: 

• Employer of Record (EOR): Efficiently manage your payroll, tax compliance, and employee benefits, including global retirement contributions. 
• Payroll Processing & Outsourcing: Streamline payroll management to ensure timely and accurate salary payments and retirement contributions. 

Start planning and ensuring a financially secure future for your workforce by filling out the form below.