Indonesia Pension Tax Scheme EET Model and Participation Gap

Public outcry spread on social media after news of a constitutional court lawsuit challenging the income tax (PPh) on pension benefits. Citizens argue that taxing retirement income burdens seniors who have worked lifelong. The lawsuit highlights the public’s limited understanding of the pension tax framework.

Indonesia applies the Exempt‑Exempt‑Taxed (EET) model: contributions of formal employees are deductible from gross income, investment returns of pension funds are tax‑free, and pension payouts are taxable. As of August 2024, only 23.6 million workers (16.3 %) are enrolled in the mandatory pension scheme, and total pension fund assets equal IDR 1,509.99 trillion (about 6.8 % of Gross Domestic Product). The government aims to raise the asset‑to‑GDP ratio to 60 % by 2045.

Because more than half of Indonesia’s workforce is informal, the tax deduction on pension contributions currently benefits mainly formal sector employees. Expanding coverage and improving financial literacy are seen as essential to build a sustainable retirement safety net. The policy will affect individual tax burdens and support long‑term social protection stability.