Transcript Benefit Incidence Analysis

The Pension System in Indonesia
Extending Pension Coverage to Informal Sector Workers:
The Asian Challenge
November 30 – December 1, 2006
P.S. Srinivas
Lead Financial Economist
Finance & Private Sector Development
The World Bank, Jakarta, Indonesia
Indonesia’s workforce is largely informal …
80.0
%
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
2001
2002
2003
2004
Informal workforce
Source: Central Bureau of Statistics
2005 feb 2005 nov 2006 feb
Formal workforce
…and based in agriculture, trade, & services
%
50.0
40.0
30.0
20.0
10.0
0.0
2001
2002
Agriculture
2003
2004
Indus try
Source: Central Bureau of Statistics
2005
feb
2005
nov
2006
feb
Trade and Services
Indonesia’s population will age faster in the next decades.
Indonesia Old Age Dependency Ratio @ 65
Observed & Projected
1950 - 2050
30%
25%
20%
15%
10%
5%
0%
1950 1960
1970 1980
Observed
1990 2000 2010
2020 2030
UN Projections - Medium Variant
2040 2050
2000 Population Age Indonesia
Pyramid Population
Age Pyramid
2000
80+
70-74
60-64
50-54
40-44
30-34
20-24
10-14
0-4
-15000
-10000
-5000
0
Male
5000
Female
10000
15000
Indonesia
2050 Population Age Pyramid -UN
Projections
Population
Age Pyramid
UN Projections - 2050
80+
70-74
60-64
50-54
40-44
30-34
20-24
10-14
0-4
-15000
-10000
-5000
0
Male
5000
Female
10000
15000
STRUCTURE OF THE SOCIAL SECURITY SYSTEM
PRESIDENT
Republic of Indonesia
Coordinating Ministry for the Economy,
Finance & Industry
Coordinating Ministry for the Economy,
Finance & Industry
National Planning Agency
BAPPENAS
Responsible for:
- Issues relating to the restructure of Social
Security In Indonesia
Responsible for:
- Efforts to empower the poor through poverty
alleviation policy
Responsible for:
- Strategic planning and
development in Indonesia.
Social Security Reform Task Force
PEOPLE’S ASSEMBLY
Department of
Manpower&
Transmigration
Responsible for:
- Labor legislation
- Supervision of
JAMSOSTEK
Ministry of Stated
Owned Enterprises
Responsible for:
- Oversight of public
limited liability
companies (Perseros)
Department of
Finance
Department of
Health
Responsible for:
- Supervision of
Insurance companies &
pensions schemes
Responsible for:
- Provision of Health
Care (except Askes &
Jamsostek)
National Social
Welfare Agency
Responsible for:
- Provision of Social
Welfare
Ministry of
Defense
Responsible for:
- Provision of Pensions &
Health Care for armed
Forces Members.
Monitoring
Supervision
Monitoring
Monitoring
Monitoring
Askes
JAMSOSTEK
Askes delivers
Health Care
Services on behalf
of Asabri
Responsible for delivery of
social security programs to
workers employed in “Legal
Entity” workplaces
Asabri
(Health Care)
Taspen
(retirement)
Private Pensions Funds
Private Insurance Companies
Summary of Pension Landscape (1)
•
Current schemes focus on civil servants and formal sector workers
– No coverage for informal sector and self employed
•
•
•
Targeted social safety net programs
Commodity price subsidies and transfers
Low coverage
–
–
–
–
Population – 220 million
Total workforce – 105 million
Pension/provident funds - ~18 million (15 % of work force)
Health insurance – ~17 million (public)
• < 10% of population
• <15% including private health insurance
•
All mandatory social security institutions are state owned enterprises
– In principle all owned by Ministry of State Owned Enterprises
– Employer-based voluntary pension funds are privately managed
•
In practice, fragmented system
– Different ministries operationally responsible for different systems
– Varying degrees of regulatory and supervisory capacity
•
Poor coordination between ministries
– No overall idea of extent of contingent liabilities imposed on state
Summary of Landscape (2)
• Governance
– Weak
• Overall, current system suffers from several
deficiencies
– Does not provide a sound social safety net to the vast majority of
workers
– Private sector system does not provide adequate level of old-age
benefits
– Civil servants and armed forces systems will impose increasing
fiscal costs in near future
– Does not encourage labor market flexibility
– Does not contribute to financial sector strengthening
Recent Steps at “Reform”
•
Objective: Provide comprehensive social security coverage to all
Indonesians
– Law enacted in October 2004
– Implementation just beginning
•
•
•
•
•
•
In the long run, replace current programs – JAMSOSTEK, ASABRI, and
TASPEN
Coverall workers – formal, informal, self-employed
Mandatory participation and contribution from employers and
employees
Includes social assistance scheme for poor Indonesians
Governed by a tripartite board of government, employers and workers
Day-to-day management (for now) to be in hands of existing institutions
– New institution to be created for informal sector/self employed workers
•
•
•
No/limited role for private providers
Defined benefit pension scheme
Comprehensive health insurance program
Key Concerns
•
•
•
•
•
Little recognition of extent of liabilities of existing programs
Defined benefit program against prevalent international practice
Demonstrated weaknesses in regulation and supervision
No details on contributions/benefits structures yet available
Consolidation of asset management with benefits administration
•
•
•
•
•
No/limited opening to competition or outsourcing
Role of sub-national governments not integrated
Static normal retirement age
Specifications left to implementing regulations – yet to be framed
Potential adverse labor market impact
• Reduction in employment and/or take-home pay
• Indonesia already suffers from weak investment climate
– No actuarial calculations to estimate contributions/benefits relationship
– No estimates of likely fiscal costs
Some illustrative estimates on impacts of the new social
security system
•
•
•
•
•
•
•
Different sets of assumptions used on:
Demography (fertility rates, etc.)
Retirement age
Benefit levels
Management performance (collection rates, investment returns, administrative
costs/benefits, etc.)
Workforce
Macroeconomic trends
Paygo Cost as % of Payroll
All Scenarios
30%
25%
20%
15%
10%
5%
20
03
20
11
20
19
20
27
20
35
20
43
20
51
20
59
20
67
20
75
20
83
20
91
20
99
0%
Paygo & RA = 55 + 100% Wages Index
Paygo & RA = 60 + 100% Wages Index
Paygo & RA = 60 Adjusted+ 100% Wages Index
Paygo & RA = 60 Adjusted +50% Wages Index
Full Funding
Reserves
Full Funding Asset Reserves
as % of Asset
GDP – All
Scenarios
Rule of Thumb Estimates
% of GDP
All Scenarios
800%
700%
600%
500%
400%
300%
200%
100%
0%
2003 2013 2023 2033 2043 2053
2063 2073 2083 2093
55 & Full Wage Index
60 & Full Wage Index
60 Adjusted & Full Wage Index
60 Adjusted & 75% Wage Index
Fund as % of GDP
Level Cost
All Scenarios
16%
14%
12%
10%
8%
6%
4%
2%
0%
RA = 55 & Full Wage Index
RA = 60 Adjusted & 50% Wages Index
20
99
20
91
20
83
20
75
20
67
20
59
20
51
20
43
20
35
20
27
20
19
20
11
20
03
-2%
RA = 60 & Full Wage Index
RA =60 Adjusted & 50% Wages Index