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Indonesia’s Pension Fund Regulations Have Matured

After enactment of the Financial Services Omnibus Law in early 2023, Indonesia’s Financial Services Authority (OJK) has released two key regulations on how pension funds should structure their products and offerings. These regulations will require employers to change their pension plan arrangements for employees. 

There are two key pieces of new legislation in this space – OJK Regulation No. 27 of 2023 on Pension Fund Business Activities (OJK Reg 27), which came into effect on 27 December 2023 and is available in Indonesian here, and OJK Circular Letter No. 4 of 2024 on Valuation of Pension Fund Investments (OJK CL 4), which comes into effect on 1 July 2024. 

Overall, the new regulations reflect a more sophisticated approach from OJK to its supervision and policies with respect to pension funds in Indonesia. In this bulletin, we briefly discuss four notable changes.



OJK Reg 27 continues to recognise two types of pension plan – a contribution-defined plan and a benefit-defined plan. While an employer pension fund (dana pensiun pemberi kerja) may offer benefit-defined plans (manfaat pasti), a financial institution pension fund (dana pensiun lembaga keuangan) cannot do so. 

The employer is now liable for any financial gap in servicing a benefit-defined pension plan. in cases where the pension fund was incorporated by the employer. 

A benefit-defined plan is known to entail higher risks than a contribution-defined plan in today’s more volatile investment environment. 

A benefit-defined pension plan should only be funded via a joint contribution from the employer and employee or a sole contribution from the employer. 



OJK Reg 27 introduces one key prudential measure in relation to benefit-defined plans. “Actuarial present value” (nilai kini actuarial) is defined as all calculated liabilities of a pension fund assuming that the pension fund exists until all its obligations to participants and beneficiaries are fully paid. 

A professional and independent actuarial report detailing the benefit-defined pension plan’s actuarial present value must be regularly submitted to OJK by any employer pension fund offering benefit-defined pension plans. 

An independent actuarial report will also be routinely used to determine whether the benefit-defined pension plan has a surplus or deficit. The report will form a key part of the pension plan’s asset-liabilities mismatch reporting to OJK, which is also a routine reporting requirement. 

Some provisions in the regulation seem to suggest that “regular” reporting would mean making a report to OJK once every three years. However, we suspect OJK may introduce a more frequent reporting cycle if OJK starts receiving complaints from employees not receiving their benefits, or else, by introducing a policy requiring more frequent reporting by specific pension funds. 



OJK Reg 27 has introduced more prudential rules for investments by pension funds, being applied to both employer pension funds and financial institution pension funds. These cover pension fund investments in land and buildings, among other things. 

Pension fund investments in land and buildings are quite common. However, to further promote prudential investment practices, OJK Reg 27 provides that (a) the legal title to the land or building purchased must be transferred to the pension fund, and (b) the investment must provide a revenue and cashflow to the pension fund while held. 

The first new requirement is interesting, since a pension fund is now being treated as a standalone legal entity that can itself hold legal title over land and buildings. 

The second requirement could mean that, in practice, if a pension fund chooses to invest in real estate, OJK could further scrutinise, on a more quantifiable metric, the valuation and business case for the investment, and might require the pension fund to adjust its real estate portfolio if the investment is not generating a reasonable income for the pension fund. More generally, OJK appears to be indirectly encouraging longer-term real estate investments by pension funds. 



OJK Reg 27 recognises that an employer pension fund can hire a professional asset manager to manage its investments. This is in line with a type of investment agreement (kontrak pengelolaan dana, locally known as KPD) which is common in the insurance sector. 

This should be welcome news for asset managers since they can now take on employer pension funds as their clients. 

Meanwhile, financial institution pension funds continue to be prohibited from engaging third parties to manage their assets. 


Please reach out to your usual contact if you have any questions on how these new OJK regulations might affect your pension funds. 

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