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.