A new study, conducted as part of an ARC Linkage project by researchers affiliated with 鶹madou Business School and the ARC Centre of Excellence in Population Ageing Research (CEPAR), offers a transformative approach to pension reform in emerging economies, using Indonesia as a case study.
Pension reform is a critical policy challenge across emerging economies, particularly in Asia. In contrast to more developed regions, pension systems in these countries are confronted with the dual challenge of extensive informal labour markets and inadequate social protection mechanisms.
Recently published in the journal Economic Modelling, the research develops a sophisticated economic model to evaluate the impact of raising the formal retirement age and introducing a modest social pension for informal workers. The study finds that combining these two reforms can significantly improve welfare and equity across both formal and informal sectors, while remaining fiscally sustainable—even in the face of rapid population ageing.
The study calibrated a detailed economic model using Indonesian household and macroeconomic data. It found that extending the formal retirement age from 55 to 65, alongside introducing a flat-rate social pension equivalent to 6.5% of per capita GDP, could deliver broad-based welfare gains, particularly for older informal workers who currently lack retirement support.
“This research provides a scalable policy framework for countries grappling with large informal labour markets and ageing populations,” said Dr Kudrna, who led the study. “It shows that inclusive and sustainable pension systems are achievable with the right mix of structural reforms.”
Read the full article in Economic Modelling .