Indonesia Case Study - How Incentives Can Boost Pensions For Informal Sector Workers

Overview

This case study examines Indonesia’s pension system and its effort to extend pension coverage to informal sector workers. The system is organised around a multi-pillar framework with a large social security institution (BPJS). Informal workers can enrol voluntarily in the defined contribution component of the BPJS pension system, while the defined benefit component is limited to formal sector workers. Despite these efforts, coverage among informal workers remains low: around 0.75% of informal workers participate, compared with about 32% of formal sector workers, resulting in overall pension coverage at roughly 13% of the labour force. Existing incentives rely almost entirely on tax relief, which provides little benefit to low-income workers. However, recent efforts by BPJS to improve communications and digital enrolment have increased participation from around 200,000 informal workers in 2019 to about 650,000 in 2024, showing some progress and learnings for future reforms

Indonesia’s experience highlights that pension coverage could expand further if pension schemes are supported by stronger non-tax incentives, structural reforms to the pension design, and innovative enrolment mechanisms that build on recent improvements to outreach and digital access.