The Indonesian social security program is currently undergoing a fundamental overhaul designed to make the existing system work better for the beneficiaries and to extend social security coverage to more workers, both in the formal and informal sector. The existing scheme has not been successful in its aims to provide adequate social security benefits to beneficiaries because of its low coverage, limited benefits, and low investment returns, combined with poor governance. The government has proposed a plan to convert the current social security scheme, which is based on a provident fund system, into a compulsory social insurance system. The plan is analyzed in this paper in order to examine the possible impact of the proposed scheme on the Indonesian labor market, investment flows, the government budget, and the economy in general.

From this analysis, we can conclude that there are several serious flaws in the government proposal as outlined in the proposed legislation, such as: the proposed scheme could worsen Indonesia’s labor market and investment climate, worsen the government’s budget deficits, and does not provide room for the private sector to provide social security benefits to Indonesians. Many have concluded that publicly-provided social security schemes are no longer a viable model for workers today. Instead private social security schemes would suit the health and retirement needs of today’s workers better than public social security schemes. Given the many problems facing the Indonesian public pension and healthcare system today, Indonesia should seriously consider adopting private social security programs to replace the current publiclyprovided scheme.