Social Security Reform in Indonesia: A Critical Analysis

Abstract

The Indonesian national social security program is currently undergoing a major overhaul designed to make the existing system works better for the beneficiaries and to extend social security coverage to more workers, both in the formal and informal sector. The government has proposed a plan to convert the current Jamsostek social security scheme, based on a provident fund system, into a compulsory social insurance system. The feasibility of this plan is critically analyzed in this paper. From this analysis, we concluded that there are several serious flaws in the government proposal as outlined in the proposed legislation, such as: Worsening Indonesia's labor market and investment climate, negatively impacted the state budget, is of little help for current poor elderly Indonesians, and does not provide room for the private sector to provide social security benefits to Indonesians. Cross-country evidence shows that publicly provided social security scheme is no longer a viable model for workers today and instead, privately provided social security scheme is better suited for their retirement needs. Given the many problems facing the Indonesian social security system today, Indonesia should seriously consider adopting a social security scheme based on the widely used multipillar approach to replace the current publicly-provided scheme.