Jakarta. Starting January 1, 2025, Indonesian workers enrolled in the pension program managed by state insurer BPJS Ketenagakerjaan will have to wait until they reach the age of 59 before receiving their pension benefits. This change follows Government Regulation (PP) No. 45 of 2015, which gradually increases the retirement age for participants in the program.

Payaman Simanjuntak, a labor expert, argues that companies need to adjust their retirement policies to align with the new legal framework. Many companies, including the civil service, currently set their retirement age at 56, but workers will now need to wait until they reach 59 to access their pension funds. This discrepancy, Simanjuntak says, could cause confusion for workers and companies alike.

"To avoid confusion, companies should set their retirement age at 59," Payaman recommended. The regulation not only aligns with the government’s pension strategy but also aims to strengthen the financial sustainability of BPJS Ketenagakerjaan's pension fund.

The pension age increase is part of a broader plan outlined in PP No. 45, which initially set the pension age at 56 in 2015. Since then, the retirement age has been gradually rising, with increases scheduled every three years. In 2019, the retirement age rose to 57, and it will reach 59 in 2025. By 2043, the pension age will be 65.

Labor expert Aloysius Uwiyono of the University of Indonesia welcomed the increase in pension age, stating that life expectancy in Indonesia is rising, with the average expected to reach 74 years in 2024. “With more people working in digital industries, increasing the pension age is a logical step,” he said.

However, Aloysius pointed out the importance of allowing workers the freedom to choose when they retire based on their health. "If someone is in good health, they can continue working beyond 60," he added. "But if their health is poor, they may need to retire earlier."

Tadjudin Nur Effendi, a labor expert from Gadjah Mada University, said the increase in life expectancy aligns with improvements in healthcare services and the availability of affordable medical insurance through state insurer BPJS Kesehatan. These improvements have led to a reduction in mortality rates, making it feasible for people to work longer.

He also raised concerns about the need for structural changes within companies to accommodate older workers, such as revising promotion structures and salary systems to optimize productivity. Without these adjustments, extending the working years of older employees could simply increase costs without enhancing output.

The government’s pension reform also aims to maintain the financial viability of the pension system. Indah Anggoro Putri, Director General of Industrial Relations and Social Security at the Ministry of Manpower, said that the increase in pension age would not affect the benefit amounts for retirees nor burden employers with additional contributions. The current pension contribution rate is 3 percent of a worker's salary, split between employers (2 percent) and employees (1 percent).

Economist Wijayanto Samirin from the University of Paramadina explained that raising the retirement age could boost national economic growth. With more people staying in the workforce longer, there is potential to increase the number of contributors to the economy, provided job opportunities are available. However, he noted that the key challenge remains creating sufficient jobs for the growing workforce.

He also highlighted the potential reduction in the dependency ratio, which measures the number of non-working people dependent on each working individual. A longer working life would likely reduce this ratio, easing the economic burden on families.

For businesses, the extended working years offer an opportunity to harness the experience of senior workers, enhancing productivity and efficiency. However, Wijayanto called for the need for policies that also support younger generations entering the workforce.

The pension age adjustment is part of Indonesia's plan to adapt to an aging population and better healthcare. As the pension age increases, the government aims to create job opportunities for younger workers and encourage employers to hire older workers. This is the third change to the pension age, with plans to raise it to 65 by 2043, ensuring the program stays sustainable for future generations.