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Retirement Allowance in Indonesia for Employees Reaching Pension Age


Retirement Age and Compensation

When employees in Indonesia retire, they are entitled to retirement allowance. Since 2019, the general pension age of employees in Indonesia is 57 years old. This age limit will gradually increase by one year every three years. Consequently, the next increase of pension age will be in 2022. This increase of every three years will continue until it reaches the limit of 65 years old.

Article 167 of the Manpower Law explains that the retirement compensation of employees in Indonesia who are entering pension age

  • two times the amount of severance pay;
  • reward pay for the years of service; and
  • compensation pay

The amount of retirement allowance depends on the current salary and the tenure of employees at the company. Please check our article about the calculation of termination compensations to understand how to calculate the exact termination compensations.

Company Deductions for Retirement Allowance

Corporate Pension Scheme

The company law and implementing regulations allow companies to set up and manage their own corporate pension scheme. When Indonesian companies have set up their own pension scheme, they are allowed to set off the compensations paid out to employees out of their corporate pension scheme with the amount of mandatory retirement allowance as regulated by the Manpower Law. In case the amount of compensation from the corporate pension is lower than the mandatory retirement allowance, the company must pay the difference to the employee.

Social Securities (BPJS manpower)

There are two types of mandatory pension premiums in the BPJS manpower social security package:

  1. Firstly, there is the Old Age Insurance facility, for which both the company and the employee will deposit a monthly contribution; and
  2. Secondly, there is the Pension Insurance facility, for which the company only will make a monthly contribution.

Read also: Overview of social security (BPJS) coverage in Indonesia. The company cannot to set-off the premiums of these mandatory social securities from the retirement allowance. The amounts from the Old Age Insurance and the Pension Insurance are in addition to the amount of the retirement allowance.