Indonesia should reform its pension system: World Bank

"Indonesia has time to usher in reforms in its pension system. In Indonesia, only few people set aside part of their salaries for pension," the Chief Economist of World Bank, Phillip O`Keefe, stated.
Jakarta (ANTARA News) - The World Bank has suggested that Indonesia should reform its pension system before the country starts facing the problem of an ageing population.

"Indonesia has time to usher in reforms in its pension system. In Indonesia, only few people set aside part of their salaries for pension," the Chief Economist of World Bank, Phillip OKeefe, stated while delivering the Aging Issues Report on East Asia and the Pacific here on Monday.

He referred to a number of countries that have reformed their pension systems by allocating some funds from each employees salary to be used to support the economic cost of elderly people --- those over 65 years old.

According to him, if the pension system is not reformed, a demographic burden will force the government to allocate major budgetary support for the elderly, especially in health care costs.

OKeefe explained that Indonesia should adopt the system followed by Vietnam, Thailand and Mongolia that have more systematic and effective pension schemes. These schemes also include workers in the informal sector.

"Indonesia today has no pension scheme for informal workers. The only way left is to give subsidies or incentives," OKeefe pointed out.

He added that the wage system in Indonesia was directly proportional to the workers age but it is considered an ineffective formulation.

A wage system built around seniority, meaning the longer an employee works, the more he or she earns, is also an irrelevant formulation because performance tends to decrease along with age.

Paying huge remuneration to senior workers is no longer a profitable approach, OKeefe said.

He cited that Korea has been lowering senior workers wages after they attain the age of 55 years by 10 percent.

"You should work hard in your productive age, but at a certain age, you have to stop working. There are three phases --- college, work hard and then retire," OKeefe argued.(*)

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