Designing Pension Program to Strengthen Formal Labor Market in Developing Countries: the Case of Indonesia

The basic set up of the pension system suggested in this book is multidimensional: a short run consumption tax policy to finance a defined benefit plan to support minimum physical needs of the older population, a medium run labor income tax policy to finance individuals defined contribution fully funded savings plan, and a long run skilled labor creation through university education so that individuals are able to self-finance their own pension savings through the fully funded savings plan. The defined benefit plan is important because it serves as a redistribution tool, while the defined contribution plan serves as a savings tool. In addition, the skilled labor creation serves as a supporting tool so that the pension program can be sustained in the long run.