All's well that ends well

All's well that ends well

By Darul Aqsha

JAKARTA (JP): Many parents in Indonesia used to encourage
their children to join the civil service or military.

They deemed as "servants of the state" their children's future
would be guaranteed, or at least they would receive a pension at
retirement.

Even today a large number of youths are eager to become "the
servants of the state" after graduating. They bribe, wait
patiently in a long queues or jostle in crowds to make their
dreams comes true.

Pension benefits for civil servants are channeled through PT
Taspen, which is a state-run pension company or through YASABRI
(Armed Forces Insurance Foundation) for retired military
personnel.

The pension scheme for civil servants is regulated under Law
No. 11/1969, and for military personnel under Law No. 6/1966.

Civil servants are also entitled to receive health insurance,
known by its acronym "Askes".

For private employees, there is social security program known
as "Jamsostek" managed by PT Astek under the supervision of the
Ministry of Manpower. The Jamsostek is regulated by Law No.
3/1992.

Social security is a human being's basic need. Chapter 25 of
the Human Rights Declaration of the United Nations' Charter in
1948 states that every person has the right to protection and
social security. This includes those who are unemployed, sick,
widowed, aged or unable to make a living in circumstances beyond
their control.

The minimum social security for a worker as stated in ILO
Convention No. 102 1952, includes cash allowances for the aged,
sick, unemployed and widowed, as well as medical service for the
invalid.

Social security in Indonesia is stipulated in Chapter 15 Law
No. 14/1969 on manpower.

However, many people in this country feel only civil servants,
and retired military or police personnel deserve to receive
pension benefits.

What about the millions of employees of private companies who
also render a service to their state and nation and pay taxes?

Based on Law No. 11/1992 on pension funds, the government has
encouraged private companies and financial institutions (banks
and life insurance companies) to establish pension funds for the
benefit of their employees and the company itself. The law
provides for private workers to receive pension benefits at
retirement like government servants.

The pension funds are aimed at guaranteeing the continuity of
income for employees after their retirement or during old age.

Companies which have a pension fund program will benefit by
having more productive employees, a more pleasant working
atmosphere, greater loyalty of employees, less turnover of staff
and a power of attraction in the recruitment of employees.

And for the state, the program is a means to long-term funds
to finance development projects because the span of time between
membership and pension benefits of an employee is about 30 years.

However, former finance minister JB Sumarlin said at the time
the establishment of pension funds was voluntary and companies
could set up pension funds according to their financial
abilities.

In the past, some private and state-owned companies had
established pension fund foundations.

In 1990, there were 177 pension fund foundations of private
companies with collected funds of more than Rp 4 trillion and
total investment of Rp 3.2 trillion. Meanwhile, 67 pension fund
foundations of state-owned companies had a collected fund of Rp
3.6 trillion with total investment of Rp 2.5 trillion.

Based on Law No. 11/1992, the two institutions authorized to
manage pension fund programs are the Employer Sponsored Pension
Fund (DPPK) and the Financial Institution Pension Fund (DPLK).

Economic and political observer Christianto Wibisono once
called the DPPK a "metamorphosed" pension fund foundation which
operated internally to serve employees in private and state-owned
companies, while the DPLK is an "administrator" of pension funds
as it is able to sell its services to other parties and manage
the system and substance of the pension funds.

The DPPK manages two types of programs, namely Defined Benefit
Plan (PPMP) and Defined Contribution Plan (PPIP).

The PPMP offers Defined Pension Benefit. An employee's pension
benefits depend on his working period, wage, and the valuation
factor. The latter is determined by the Ministry of Finance with
a maximum factor of 2.5 percent.

The company's contribution varies, depending on actuarial
calculation, but the employees's contribution is fixed. DPPK
membership is limited to employees of the company. The majority
of DPPKs today adopt PPMP.

PPIP, on the other hand, does not promise how much pension an
employee would receive, but its contributions, which comes from
all parties, is fixed. In other words, its pension benefits
depend on volume, period of contribution and interest.

There is another scheme called Profit Based Plan (PPBK), which
is almost the same as PPIP, but its contribution is based on
amount of profit.

Pension benefits in both DPPK and DPLK, comprise Delayed
Pension Benefit, Accelerated Pension Benefit and Normal Pension
Benefit.

The Delayed Pension Benefit is given to employees who resign
from the company after working for more than three years, but
less than 45 years in age. The pension, though not given directly
to the former employee, is given in annuity when the employees
reach the age of 45, or transferred to him if he is working for
another company which runs a pension fund program or if he
becomes a member of DPLK.

Meanwhile, the Accelerated Pension Benefit is given when the
employee reaches the age of 45, and the Normal Pension Benefit is
given when he reaches the standard retirement age of 55 or 60.
Employees who resign from the company with a working period under
three years will get an accumulation of their contribution (not
including the company's contribution) together with its interest.

Contributions in the pension fund program come from employees
and employers, the amount of which is based on actuarial
calculation.

The DPLK only manages the PPIP. This program is run by public
banks and life insurance companies which have obtained licenses
issued by the Ministry of Finance.

According to Donesius Manalu, former director of Pension Funds
of the Ministry of Finance, DPLK has a great potential given the
longer life expectancy of the Indonesian population which allows
for longer working periods and more time before paying pension
benefits.

Thereby, the contributions will increase too.

DPLKs can create pension formulas to attract people based on
government rules and regulations. The pension formula should
cover investment, be secure and yet profitable. The formula is an
important factor in determining its competitiveness.

The DPLKs which operate in Indonesia are organized by domestic
banks and life insurance firms, such as Bank BNI, Bank Muamalat
Indonesia, Jiwasraya and Tugu Mandiri, and joint ventures like
Allianz Aken, Principal Indonesia, Winterthur Indonesia and
Bumiputera John Hancock.

Companies which do not want to be bothered by the
administration of pension funds, entrust their employees's
pension funds to DPLKs.

Investment observer Elvyn G. Masassya offers several tips on
how to select a credible DPLK: consider its financial report,
business group, professionalism and transparency, and ask about
worst case scenarios.

However, the existence of DPLKs is an opportunity for all
layers of the community, including farmers, traders,
entrepreneurs and even active members of DPPK, to receive pension
benefits. DPLK membership is open to everyone and contributions
are even flexible.

There are thousands of companies in Indonesia today. But until
April 1999, there were only 315 DPPKs and 25 DPLKs which had been
approved by the government.

The number of pension fund program members is 1,141,862.
According to another source, there were 333 pension fund
institutions in 1999 with total assets reaching Rp 26.94
trillion. This figure is 21.27 percent higher than the Rp 22.2
trillion recorded in the previous year.

Reportedly, several DPPKs' assets have reached some trillions
of rupiah.

Last year, DPPK assets of big state firms reached trillions of
rupiah. DPPK Bank BNI, for example, is already worth Rp 2
trillion, Pertamina Rp 1.9 trillion, and PT Telkom, Bank
Indonesia and BRI Rp 1.5 trillion each.

The asset value of DPPKs of private firms worth billions of
rupiah are like those in Astra International (Rp 300 billion),
Indocement Tunggal Prakarsa (Rp 100 billion) and Bank Niaga (Rp
97 billion).

Generally, the funds are invested in, among others,
certificate of deposits, time deposits, stocks, money market
securities, mutual funds, equity participation, bonds and
properties (land and building) with the percentage of each
investment based on the founder's investment directive.

The pension fund institutions consider deposits in banks more
interesting and easier to manage, particularly since the economic
crisis hit the country in 1997.

However, there are requirements which must be fulfilled in
establishing pension fund programs.

The writer is a staffer of The Jakarta Post and an executive
of DPPK The Jakarta Post.