Indonesia Faces Looming Pension Crisis as Millions Risk Poverty in Retirement
Jakarta, Indonesia – A significant portion of Indonesia’s workforce is at risk of facing financial hardship during retirement due to insufficient pension savings, according to projections from the Ministry of Finance. Estimates suggest that approximately 100 million Indonesians may enter retirement without adequate pension funds by 2038, raising concerns about the sustainability of the national labor system and social security net.
The Scale of the Problem
The core issue stems from a combination of low savings rates and limited pension coverage, particularly within the informal sector. Many Indonesians currently allocate only around 3 percent of their income to retirement savings, significantly less than the 10 percent recommended for financial security. This shortfall is exacerbated by the fact that current pension schemes do not adequately cover a large segment of the population.
Limited Pension Coverage
Pension coverage in Indonesia remains limited, failing to reach the majority of workers. The existing pension security program, managed by BPJS Ketenagakerjaan (Indonesia’s social security agency for workers), primarily targets wage earners in the formal sector. However, the Indonesian labor market is largely dominated by informal workers, who are often excluded from these benefits.
Data from the National Labor Force Survey (Sakernas) in August 2025 indicated approximately 61.8 million formal workers in Indonesia. However, as of the same period, only around 15.2 million individuals were actively participating in the BPJS Ketenagakerjaan pension security program. This means that less than 25 percent of formal workers are covered by pension schemes.
Vulnerability of Informal Workers
Informal workers are particularly vulnerable to financial insecurity in retirement. Existing pension schemes generally do not include this group, leaving them without a crucial safety net. While some informal workers may have access to the Old-Age Security program (JHT), the funds are often accessible before retirement age when changing jobs, diminishing their long-term value.
According to labor expert Qisha Quarina, Ph.D., from the Faculty of Economics and Business Universitas Gadjah Mada (FEB UGM), “I see that the pension security scheme is still oriented toward formal workers. Even in the formal sector, not everyone is covered. So there is a design bias in the system toward wage earners.”
Potential Economic and Fiscal Impacts
The lack of adequate pension coverage poses potential risks to Indonesia’s economic future. Without sufficient retirement savings, individuals may be forced to continue working beyond a reasonable age, rely on family support, or fall into poverty. This situation could also place a significant burden on the government’s social assistance programs, such as the Family Hope Program (PKH), and potentially lead to increased taxation on younger generations – a “generational burden.”
Qisha Quarina explained, “If projections continue like this and they do not have adequate social security, the government will ultimately need to intervene through social assistance programs… The burden could then shift to younger generations through taxation.”
Need for Improved Financial Literacy and System Reform
Addressing this looming crisis requires a multi-faceted approach, including improving financial literacy, raising awareness about the importance of retirement savings, and reforming the existing pension system to expand coverage and better protect vulnerable workers. Further research is needed to assess the long-term impact of current social security programs on beneficiaries’ welfare.
Qisha Quarina noted that currently available data primarily reflect participation numbers, lacking comprehensive information on whether benefit withdrawals actually improve long-term welfare.
The Ministry of Finance is actively monitoring the situation and exploring potential policy interventions to mitigate the risks associated with the projected pension shortfall.