Sharia Pension Funds: An Alternative Solution to Elderly Ageing Challenges

The National Elderly Day on 29 May should serve as a moment of collective reflection, as it reminds us that Indonesia is moving towards an ageing society. This condition is evidenced by the percentage of the population aged 60 and above, which is projected to reach 11.97% by 2025, according to BPS. Currently, the elderly have a very high dependency on working household members as their primary source of consumption funding, reaching 82.96%. Meanwhile, only 5.43% rely on pension schemes, and less than 1% utilise savings and investments to support their needs in old age.

This situation illustrates that many elderly citizens in Indonesia are still supported by family institutions rather than adequate pension savings. This is a clear manifestation of the Overlapping Generations Model (OGM), where economic pressure shifts from the productive generation to the elderly generation. Simultaneously, the working-age generation also bears the needs of the generation below them, a phenomenon known as the ‘sandwich generation’, where one generation finances themselves, their children, and their parents all at once.

At the macro level, this phenomenon is clearly reflected in the 202_ National Transfer Account (NTA) published by BPS. Firstly, the elderly population experiences a life-cycle deficit of Rp21.67 million per capita, which is significantly higher than the average Indonesian deficit of Rp3.85 million per capita. Secondly, upon reaching age 60, Indonesians transition from net producers to net consumers. Thirdly, the national aggregate deficit for the elderly group reaches Rp645.7 trillion. This deficit is primarily funded through private reallocation of Rp591 trillion, while public or government support accounts for Rp54 trillion.

These findings confirm that elderly financing is an intergenerational and fiscal issue. If mitigation is not prepared during the productive years, the financial burden will continue to be transferred to families and the state. NTA 2024 studies also explain that Indonesia’s demographic dividend is expected to end by 2027. In 2025 alone, Indonesia only gained an economic growth bonus of 0.07% from the demographic dividend, whereas over the past four decades, it contributed an average of 0.50% per year to national economic growth. The final phase of this first demographic dividend signals the importance of ensuring that Indonesia’s productive-age population can convert part of their income into long-term asset accumulation.

What solution can be offered to the Indonesian people to ensure an adequate financial safety net when entering old age? Sharia pension funds serve as a crucial instrument in the nation’s social infrastructure for an ageing population. Alongside the existing national social security system, Sharia pension funds complement the elderly financing ecosystem through two key roles. First, like general pension funds, they operate on principles of long-term accumulation, professional management, and deferred benefits. Second, operating in compliance with Sharia principles aligns with the values of Indonesia’s Muslim population, particularly for those with a preference for Sharia financial services or those seeking ‘financial hijrah’ in their later years.

However, voluntary Sharia pension funds currently record relatively small assets and participation compared to conventional funds. As of March 2026, total assets reached only Rp5.2 trillion across 6 institutions and 301,600 participants (OJK, 2026). Yet, the opportunity within the Islamic ecosystem alone is vast. Workers in sectors including Hajj and Umrah travel, zakat and waqf institutions, private madrasahs, Islamic universities, Islamic hospitals, and Halal MSMEs are estimated to reach 12.67 million people. The presence of Sharia pension funds should serve as a long-term protection channel for workers in this ecosystem.

To address current limitations, the existence of existing Sharia pension funds is not enough. New institutional designs and relevant services are essential. First, large-scale Sharia pension funds must be established to ensure efficient management and economies of scale; large Sharia financial institutions, such as banks or investment managers, could initiate this. Second, the digitalisation of access is necessary to reach participants in remote areas. Third, services could be combined with health protection required in old age. Furthermore, integration with Islamic social instruments (zakat, infaq, sadaqah, waqf) and estate planning could serve as complementary services. Finally, a wide variety of contribution options, Sharia pension investment packages tailored to participant risk profiles, and competitive returns are key to ensuring long-term yields can improve the replacement ratio, supporting the goal of long-term asset accumulation for financial independence.