From Wages to Old Age: The Unfinished Social Contract

Her severance pay was disbursed two years ago. The balance of her Old Age Security Savings or JHT, accumulated over more than three decades, has also been exhausted to pay off debts for renovating her newly married child’s home and to cover her wife’s cataract surgery.

“Now every month I wait for transfers from my child,” she said softly, with a bitter smile. “But my child is also a textile worker.”

I fell silent. That sentence reminded me of one thing that for years has been overlooked in our public discourse. Labour Day commemorations almost always discuss wages, work contracts, outsourcing, and health insurance.

All those issues are important, but they all revolve around the phase when workers are actively employed. Almost never is there a serious question posed about what happens after workers can no longer work.

May Day 2026 arrives with eight main demands. Among them are the enactment of a new Employment Bill, the abolition of outsourcing, an increase in PTKP to Rp 7.5 million, the halt of layoffs, and the ratification of International Labour Organization (ILO) Convention No. 190.

All those demands are valid. All are urgent. However, almost all of them stop at the same point, namely when workers are still productive and still have an employer.

The recurring May Day demands year after year actually reflect a more fundamental reality. Indonesia’s “new” labour social contract is designed for the working phase, not for the phase when work ends.

Data from the Ministry of Manpower shows that throughout 2025, there were 88,519 workers who experienced layoffs, up from 77,965 workers in 2024. In the first quarter of 2026 alone, there were already 8,389 workers who became victims of layoffs, with West Java recording 1,721 cases.

In the textile and textile products industry, the accumulated layoffs over the last two years are estimated to reach 250,000 people. Said Iqbal, President of KSPI, mentioned that around 9,000 more workers are at risk of layoffs ahead of May Day, especially in the textile and plastics sectors.

However, the more important issue is not just how many people lose their jobs, but where they go after being laid off.

For young workers, layoffs may still be considered a temporary disruption. They still have time to find new jobs, switch sectors, or build other skills. But for workers in their fifties, layoffs often become the end of their productive career. They face acute difficulties in returning to the formal job market.

Some end up in the informal sector, doing small-scale trading, becoming ojek online drivers, or becoming disguised unemployed in households. Technically, they may not be recorded as open unemployment. However, they also do not have regular income.

It is at this point that the structural weakness of our labour social contract becomes clearly visible. Indonesia does have JHT designed as a financial cushion for old age. However, its main design is still in the form of a lump-sum payment rather than monthly income when entering retirement.

Workers with long service periods usually receive a JHT balance of around Rp100 million to Rp200 million. With minimum living costs in big cities reaching Rp4 million to Rp5 million per month, such funds will run out in three to five years. Meanwhile, Indonesians who reach the age of 60 on average still have a life expectancy of about 15 to 20 more years.

This simple arithmetic reveals a grim reality. In its current form, JHT is not truly old age security. It is more like severance pay under another name.

There is indeed Pension Guarantee or JP BPJS in the form of monthly annuities. The problem is that its coverage is still limited. The informal sector, which absorbs the majority of the workforce, is almost entirely outside the system.

Unlike Singapore with CPF Life, Malaysia with EPF i-Saraan, or Chile after reforming the AFP system, Indonesia does not yet have a multi-pillar pension architecture that can reach the entire workforce.

This issue is not rhetorical. BPS and Bappenas estimate that by 2050, the proportion of the population aged 60 and above will reach around 20 percent, or more than 60 million people.

The demographic bonus that we have long been proud of will end. What remains is a demographic burden if we fail to prepare a social protection system now.

Without pension system reform, Indonesia risks becoming old before rich. The elderly group could become a new pocket of poverty. Today’s lower middle-class workers, who according to KSPI are already in the near-poor category, have the potential to become the most vulnerable elderly group in the next two decades. The symptoms are already visible.

The number of Indonesia’s middle class fell from 57.3 million people in 2019 to 47.9 million people in 2024. Those who have fallen in class today are very likely to become poor elderly in the future.

Therefore, the question is no longer whether the pension system needs to be fixed, but how that reform should begin.

First, JHT and Pension Guarantee need to be consolidated into a Lifelong Income Guarantee scheme. Workers’ accumulated balances should not necessarily be withdrawn all at once, but converted into lifelong monthly income after the age of 60.

Workers who need urgent funds can still be given the option of partial withdrawal, for example a maximum of 30 percent, for housing or health costs. However, the default choice must be directed towards monthly cash flow, not a one-time full withdrawal. Singapore has been implementing this principle through CPF Life since 2009. Indonesia can design a similar model with adjustments to the local context.

Second, Indonesia needs a Portable Protection account for informal workers and gig economy workers. This account is individual, linked to the population registration number, and can receive contributions from various sources.

Those sources include voluntary worker contributions, subsidies