Potential impacts of Indonesia’s social security reforms on the administration of social security institution

I visited one of the BPJS Employment (BPJS-TK) offices to learn about the implementation of social insurance programmes in Indonesia. BPJS-TK has different offices with various functions. This office is the first-class office, which is the largest branch office after the head office. The office has about 30 staff members, including 20 staff members working in the membership division and 10 staff members working in the service division. The service division staff members are divided into two groups: three officers provide front-end services, and the rest provide back-office support.

There are usually two or three back-office staff members who process the claims. The division head approves the claims after the certifying officers clear or validate the claim documents, and finally, the head of the branch office approves the claims. There are thresholds that allow the division head to approve claims without forwarding them to the head of the branch office. Claims up to 15 million Indonesian rupiah can be approved at the level of the division head who is leading the service team, considering that all periodic benefits can be approved at this level. On the other hand, some benefits may have to be approved by the branch head.

Concerning the Indonesian social insurance schemes, periodic benefits are paid for disability pension, survivors’ pension, and unemployment benefits only. Other schemes, including old-age pension, provident fund (JHT), employment injury benefits, and life insurance benefits, are currently paid in a lump sum. Therefore, most of them require the approval of the branch head to process the payment because the amount of payment will exceed the 15 million Indonesian rupiah threshold.

Most of the claims that the BPJS-TK branch offices process every day are for the lump-sum withdrawal from the JHT. There are about 130 to 150 claims that the first-class branch office deals with on a daily basis. On Monday, the first day of each month, before the end of Ramadan, before the holiday season, and before the school year in June and July, the number of claims for withdrawing JHT savings rapidly increases because people find savings in their accounts and try to access withdrawal of the funds.

Many people come to claim the benefits at the beginning of the day. The BPJS-TK branch office commonly opens at 8:30 am, and there are usually a crowd of people waiting outside the building. The security guards collect the names, provide numbers, and give forms to fill out before customers enter the office premises. Once the opening hour starts, the customers press a button on the digital screen to receive their number, and when their number is shown on the screen, they can go to the counters.

Financial Sector Strengthening Bill and JHT Reform

The Indonesian parliament passed a bill on strengthening the financial sector in January 2023. To implement this law, the government of Indonesia must finalise the government regulation by January 2025, within two years after the adoption of the law. Concerning old-age income security schemes, the reform of JHT is the major focus of the law. There have been several discussions and options presented at public consultations in the past years.

One of the general directions of the government’s approach is to limit the withdrawal of the JHT by separating the fund accounts into two or more and then allowing workers to withdraw funds from one account only, while they cannot touch the other accounts until they reach retirement age. Such a model is adopted in Singapore and Malaysia, which have higher allocations of contributed funds to the retirement account and allow participants to withdraw from other accounts for specific purposes, including housing purchases, critical illnesses, paying tuition fees, and so on. One account is flexible for workers to withdraw from at any time if they want.

If Indonesia implements such a measure, it is beneficial for the JHT to restrict members’ withdrawals, although Indonesian workers traditionally did not like the idea of preventing them from withdrawing their own funds. This is the right direction for the JHT to maintain their fund so that they can achieve the objective of old-age income security. However, besides the potential workers’ criticism, from the operational perspective, if BPJS-TK needs to implement separate accounts and accept many ad hoc claims that members may file in the future, BPJS-TK may have to have more staff members and more operational costs, which will eventually require more budget allocations from contributory funds and/or the government tax injections to BPJS-TK.

Unemployment Benefits and Fixed-Term Contracts

From the policy perspective, if the new government regulations limit the withdrawal of the JHT, the unemployment benefits scheme must guarantee unemployment benefits for their members. Currently, the major reason for members to withdraw the JHT fund is employment termination or resignation due to the expiry of a fixed-term contract. In our recommendations, we recommended to the government that regulations allow expired fixed-term contracts to be eligible reasons for unemployment benefits if the expiry has an involuntary nature of job loss. For instance, if workers wanted to continue working but employers didn’t offer an extension of the contract, such workers must be eligible for unemployment benefits.

After the job creation law was adopted, the Indonesian employer-employee relationship has become more flexible. More and more contracts have been on a fixed-term basis rather than a permanent basis, and the job creation law allowed employers to renew fixed-term contracts without any break. So, I assume that many workers lose jobs due to the expiry of fixed-term contracts because employers do not have any reason to dismiss workers if their contract is set to expire within a few weeks, and then they can continue issuing fixed-term contracts every month without paying statutory severance pay. While it is important to implement some sort of restrictions on such employment practises, the unemployment insurance scheme could allow workers who lost jobs due to the expiry of fixed-term contracts to receive unemployment benefits so that these workers will not have to withdraw their JHT funds and can keep their savings for old age.

Implications for BPJS-TK Operations

Finally, in terms of the implications for BPJS-TK operations, in addition to the increasing number of withdrawals from the flexible accounts of the reformed JHT scheme, the increasing number of unemployment benefit claims will also impact the operational costs of BPJS-TK. The major problem that many workers raise regarding the unemployment insurance scheme today is the low number of claims and the difficulty in receiving benefits from the scheme. In my assessment, this is because the expiry of fixed-term contracts is not an eligible reason for the unemployment insurance scheme. So, if the government revises the regulations on unemployment benefit schemes to allow such cases to be eligible, BPJS-TK will receive many more claims every day.

We tend to discuss only the policies of certain schemes, but it is important to discuss the linkage between different benefit schemes and their designs and parameters. Eventually, we also need to think about the potential increase in operational costs and the cash flow of social security institutions.


Tsuruga, I.; Brimblecombe, S.; and Landry, A. 2023. Unemployment insurance in Indonesia: Challenges and recommendations. ILO.

Carter, J.; Tsuruga, I. 2023. Feasibility study on an unemployment insurance system for Indonesia: Institutional and operational aspects. ILO.

Brimblecombe, S.; Plamondon, P.; Phan, D. T.; Tsuruga, I. 2023. Republic of Indonesia: Report to the Government – Financial assessment of the social security pension schemes administered by BPJS Ketenagakerjaan as of 31 December 2020 and costing of sickness and maternity benefits. ILO.