Pension contribution rates and other details regarding the Pension, Work Accident, Death, and Old Age insurance programs were provided for in the long-awaited government regulations on BPJS-TK programs (effective 1 July 2015).  These were finally signed and issued by President Jokowi on 30 June 2015.  Government Regulation No. 44 Year 2015 concerns Work Accident and Death Insurance, No. 45 concerns Pension Insurance, and No. 46 concerns Old Age Insurance.²  

The highlight is the new pension insurance program (Regulation No. 45 Year 2015).  After months of debates and numerous discussions between the government and the Indonesian Employers’ Association (APINDO), the pension contribution rates are finally agreed at 2 percent from employers and 1 percent from employees, with a maximum salary cap of IDR 7,000,000/month.  The regulation also mentions that the rate will be reviewed on an on-going basis, or no less than every three years, in consideration of Indonesia’s economic growth rate.

The new BPJS-TK forms require the national identification (ID) number to be stated. Indonesian citizens should refer to their identify cards (KTP) or family cards (KK), while the expatriates IDs would be noted in their family registry document (Surat Keterangan Susunan Keluarga Penduduk Sementara / SKSKPS).

Please find below the current social security rates based on the new BPJS-TK regulations.

*  With a maximum salary cap of IDR 7,000,000.

• Following the 1997-8 financial crisis, there were indications that the Indonesian Social Security system was not robust enough to protect citizens against severe economic down-turns.   This new Social Security system aims to cover the workforce in the “formal” and “informal” sectors, including self-employed individuals.
• 2013 data show that only 25 percent of eligible workers were actively contributing to old age savings under the previous Jamsostek scheme, putting significant pressure on the government to review the social security program.³
• As the benefit for the old age program under Jamsostek was paid in a lump sum instead of a monthly annuity, most individuals did not roll-over their benefits for an old age income stream.  Therefore, the objective of securing benefits for retirement again was not met, which resulted in the government introducing a new program – the Pension program.
• Although issued only one day before the effective date of 1 July 2015, most businesses were already aware of the government’s intention to introduce the Pension program and therefore had made the necessary preparations to anticipate the additional cost and reporting.
• The income tax treatment of the Pension program should be similar to other pensions established by the Minister of Finance, as per the regulation of the Director General of Tax No. PER-31/PJ/2012 and the regulation of the Minister of Finance No. 16/PMK.03/2010.  These regulations state that income received in the form of pension benefit money, old-age allowance, or old-age security that is paid in a lump sum (including payment made within a maximum of two calendar years) is subject to final employee income tax (Article 21) at rates of 0 – 25 percent.  While payment made in installments over a period of more than two years is subject to employee income tax (Article 21) at rates of 0 – 30 percent (non-final).  This income tax treatment should be similar to the treatment of the Pension program.  One of the most commonly asked questions is, “What is the difference between the benefits of the new Pension program compared to the Old Age Insurance program?”  To answer this, we have made the side-by-side comparison shown just below.

*  The regulation states that the Old Age Pension may only be claimed in full upon retirement, permanent disability, or death. However, the government intends to amend the regulation to allow full lump sum claims upon termination from employment as well.

**  The retirement age is set at 56 years old. Starting 1 January 2019, it will be 57 years old, and it will continue to have a one year increase every three years until it reaches the maximum retirement age of 65 years.