Currently, the retirement age in Indonesia is 56 years old. As of January, 2019, the retirement age is set to increase to 57 years old and after that gradually increase until 65 years old. When employees in Indonesia retire, they are allowed a certain amount of retirement allowance based on the Labor Law number 13 of 2003 on Manpower (Labor Law). In this column, we discuss in which cases employees are entitled to this retirement allowance and which deductions are available for companies. This column will not discuss the pension allowance and old age insurance from BPJS.
Article 167 of the Labor Law regulates the retirement allowance. The article sets the amount of retirement allowance as follows:
- In the event the company has included the employee in a corporate pension fund (the pension fund of BPJS and the old age insurance from BPJS are not regarded as corporate pension fund), the company is not required to pay retirement allowances, unless the lump-sum payment of the corporate pension fund is less than:
- severance pay 2 (two) times the amount as stipulated under subsection (2) of Article 156 of the Labor Law
- reward pay for period of employment amounting to one time the amount as stipulated under subsection (3) of Article 156 of the Labor Law; and
- compensation pay for entitlements in accordance with subsection (4) of Article 156 of the Labor Law.
Please note that to determine the amount of lump-sum payment is calculated based on the amount paid by the company. The amount which was paid by the employee itself through deductions of salary are left out of the calculation.
- In the event the company has not included the employee in a corporate pension fund, the company is required to pay the retirement allowance in the amount as specified under point 1(a) – (c) above.
As stated earlier, BPJS insurances cannot be used as deductible for the retirement allowance. Subsection (6) of Article 167 of the Labor Law states that their entitlement to old age benefits shall not eliminated. Moreover, the pension fund referred to in article 167 of the Labor Law is referring to Law Number 11 of 1992 regarding Pension Fund (Pension Fund Law). Article 2 of the Pension Fund Law states:
The Pension Fund types are:
1) Employer Pension Fund;
2) Pension Fund of a Financial Institution
Subsection (2) and (4) of Article 1 of the Pension Fund Law defines the Employer Pension Fund as a pension fund set up by a person or entity employing the employees. Whereas Pension Fund of a Financial Institution is a pension fund set up by a bank or life insurance company. The BPJS insurance does therefore not fall under the definition of the pension fund as mentioned under article 167 of the Labor Law.
This column is provided by PNB Law Firm Jakarta