Supplementary Pension Schemes in Indonesia

SSEK  Legal Consultants partner Fahrul S. Yusuf and Maria Yudhitama, an associate at the firm, have contributed the Indonesia chapter of the new Practical Law global guide to pension schemes. The following is an excerpt.

Is it common (or compulsory) for employers to provide access, or contribute, to supplementary pension schemes for their employees? If they do, are they:

• Occupational (that is, linked to an employment or professional relationship between the plan member and the entity that establishes the plan)?
• Personal (that is, not linked to an employment relationship, established and administered directly by a pension fund or a financial institution acting as pension provider, where individuals independently purchase and select material aspects of the arrangements, though the employer may make contributions)?

There is no requirement for a private sector employer to provide a pension plan for its employees. Law No. 11 of 1992 regarding Pension Funds (Pension Fund Law) provides two types of pension fund:

• Employer's Pension Fund (Dana Pensiun Pemberi Kerja) (DPKK). DPKK can be categorized as an occupational pension fund as it is based on the employment relationship between the employer (as the founder of the pension fund) and the employees (as members of the pension fund). A DPKK can offer two pension programs:
  • a defined benefit program: a pension fund program where the benefit is fixed and stipulated under the pension fund rule or other pension fund program that is not categorized as a defined contribution program.
  • a defined contribution program: a pension program where the contribution is fixed and stipulated under the pension fund rule and the whole contribution and investment result is recorded in the accounts of each member as a pension benefit.
• Financial Institution Pension Fund (Dana Pensiun Lembaga Keuangan) (DPLK). DPLK can be categorized as a personal pension fund that is not linked to the employment relationship, as a DPLK is established by a bank or a life insurance company. A DPLK can only offer a defined contribution program (see above).

Approval from the Financial Services Authority (Otoritas Jasa Keuangan) (OJK) is required to establish and maintain both types of pension fund.

Where supplementary schemes are provided, do these schemes provide pensions, the value of which:

• Is linked to the employee's salary (defined benefit)?
• Is linked to employer and/or employee contributions and investment return on those contributions (defined contribution)?

Linked to the employee's salary

The pension is linked to the employee's salary but the value of the employee's contributions will depend on the terms of the pension fund rules. The membership requirements for a pension fund (either voluntary or mandatory) will be based on the pension fund rules as determined by the employer as the founder of the pension fund.

Linked to employer and/or employee contributions Contributions under the DPPK program are based on either:

• Employer and employee contributions.
• Employer contributions only.

The pension benefit for defined contributions is calculated based on the contributions made by the employer and the employee and the investment return on the contributions.

For supplementary pensions:

• Is there a minimum period of service before workers are entitled to receive vested rights?
• Are there any legal requirements for schemes or providers to index pensions in payment and/or revalue pension rights in deferment?

Minimum period of service

An employee who has been a member of a pension fund for more than three years is entitled to receive vested rights.

Legal requirement to index

The formula for pension payments and the revaluation of deferred pension rights is provided in the pension fund rules.

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