The Indonesian government has announced a pivotal change to its retirement policy: extending the official retirement age to 59.

Anchored in Article 15 of Government Regulation No. 45/2015, the decision is designed to address economic and demographic shifts, including increasing life expectancy and the need for greater financial security among retirees.

However, as with any major policy change, reactions have been mixed, as Jakarta Globe reported. Some see it as a necessary adjustment, while others worry about its implications on employment and economic dynamics.

A gradual climb towards 65

Indonesia’s retirement age has been on a steady upward trajectory since 2015, when President Joko Widodo set it at 56.

The policy established a framework for incremental increases, raising the threshold to 57 in 2019 and 59 in 2025, with a long-term goal of reaching 65.

The government’s rationale is twofold: allowing workers to build more substantial retirement savings while ensuring the sustainability of pension funds managed by BPJS Ketenagakerjaan, also known as the Employment Social Security Administration Agency.

The policy is part of a global trend where nations are raising their retirement ages to safeguard financial stability.

Germany, for instance, has been gradually increasing its retirement age from 65 to 67 since 2012. France moved from 62 to 64 in 2023, while Malaysia set its threshold at 60 in 2013. Singapore, too, is on a path to raising its retirement age to 65 by 2030.

Despite these international precedents, economist and public policy expert Achmad Nur Hidayat warns that Indonesia must tailor the approach to its unique demographic and economic landscape.

“Without proper mitigation steps, raising the retirement age could lead to more negative impacts than benefits,” Achmad cautioned.

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Economic stability and financial security

Extending the retirement age brings a range of potential economic benefits. By keeping workers in the labour force longer, Indonesia aims to ease the financial burden on its pension system while ensuring that retirees have more time to accumulate savings and increase their contributions to BPJS Employment.

From an economic perspective, a longer working life means a more experienced workforce, which can drive business productivity and economic growth.

Seasoned professionals bring institutional knowledge, mentorship opportunities, and stability to industries that benefit from experience.

But, as life expectancy today rises, the risk of retirees outliving their savings grows. In extending working years, the government hopes to bolster financial security for the ageing workforce, ensuring that pensions stretch further into retirement.

Workforce challenges and generational tension

Despite these advantages, however, the policy is not without significant challenges. One major concern is productivity and health issues among older workers.

Certain industries, particularly those involving manual labour or physically demanding tasks, may struggle with an ageing workforce.

Without proper support, such as workplace accommodations and expanded healthcare access, the policy could place undue strain on older employees.

There’s also the issue of job market stagnation. With senior employees staying in roles for longer, career progression for younger workers may slow down and limit opportunities for fresh talent to enter the workforce.

This could have a knock-on effect of increasing youth unemployment and stunting skill development among new graduates.

“The key is finding a balance to avoid social conflicts while ensuring the policy benefits the economy and society as a whole,” Achmad said.

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Strategies for a smooth transition

To ensure that the policy shift delivers net-positive results, several key measures need to be in place:

1) Upskilling and reskilling programmes

Older employees may require continuous training to stay competitive, particularly in industries undergoing technological transformation.

2) Improved workplace health and safety measures

Companies should introduce ergonomic work environments, flexible hours, and wellness programmes to accommodate an ageing workforce.

3) Job creation and labour market adaptation

The government must prioritise policies that foster job growth, ensuring that younger workers do not face employment bottlenecks. Encouraging entrepreneurship and digital economy participation could help create new career pathways.

4) Retirement transition support

Implementing gradual exit strategies, such as phased retirement or part-time options, can help smooth the transition for both employees and employers.

Indonesia’s decision to extend the retirement age is a double-edged sword – it offers financial stability for retirees and economic resilience for the nation but also presents challenges that could disrupt the labour market if not properly addressed.

The real test is not in the regulation itself but in how well it is implemented. The coming years will be crucial in determining whether Indonesia can adapt its workforce policies effectively to ensure that both older and younger generations thrive.