70089 Policy Note on SJSN PROGRAM AND POLICY IMPLICATIONS Issue 1, May 2012 Implementation of BPJS Ketenagakerjaan The Government of Indonesia (“government� or “GOI�) will implement a new National Social Security System (Sistem Effective Jaminan Sosial Nasional or SJSN) over the course of Implementation Working Group the next four years that will radically change the social Capacity Design, Costing protection paradigm. The legal bases for these changes Building and Financing are the SJSN Law No. 40/2004 and the Law No. 24/2011 on Social Security Administrative Bodies (referred as Badan Penyelenggara Jaminan Sosial or BPJS law). Responsibility Institutional and Transformation Accountability The new social protection program will cover all Indonesians, including formal and informal sector workers, for five Implementation benefits – health, pension, old-age savings, death benefits Issues and worker accident and provide the same benefits for Collection of Issuance of Implementing all. The BPJS Law mandates the establishment of BPJS Contributions Regulation Kesehatan and BPJS Ketenagakerjaan, by transforming current administrators, PT Askes and PT Jamsostek, from state owned enterprises to public legal entities. Issuance of Asset Unique ID to Management Risk All Members Management and BPJS SJSN Law Supervision BPJS Law Implementation Working Groups. Implementing the SJSN employment programs and securing their sustainable BPJS Kesehatan BPJS Ketenagakerjaan financing will prove particularly challenging and will require a series of major actions from the government and BPJS Ketenagakerjaan. Collaboration among implementation Health Pension Old-Age Work Death working group members from multiple ministries will be Savings Accident Bene�ts needed to ensure collective agreement on the broad strategy for the implementation, and operation of the new system. Although Menko Kesra (the Coordinating Minister for People’s This policy note will give a brief overview of the current Welfare) issued Decree 17/2012 in February 2012, which situation, identify GOI challenges and provide some was further amended by Decree 22/2012 issued in March recommendations for immediate government actions for the 2012, outlining the bureaucratic structure for implementation implementation of BPJS Ketenagakerjaan. of BPJS law, there is no clear indication of the roles and responsibilities of each member of the implementation Current Situation, Challenges and Required working groups. This issue needs to be clarified since it will Actions directly affect the success of the program implementation. The enactment of the BPJS law is a significant step in the Strong leadership is required for implementation due to the implementation of the national social protection system for large number of stakeholders with diverging interests, the all Indonesians. However, much work remains to be done. significant impact of these programs to the social structure BAPPENAS of the country, and the significant potential impact on the be needed for PT Jamsostek as it transforms from a persero State budget, the labor market and the macro economy. managing programs for a particular labor market segment It is crucial to develop a roadmap outlining activities, to BPJS Ketenagakerjaan managing nationwide programs roles and responsibilities to ensure smooth, effective covering thousands of employers and millions of informal transformation. Each working group member needs a sector workers. Moreover, implementation of a new pension job description outlining his or her specific responsibilities, program will require a new set of skills -- both technical and expected output and timeframe. The primary focus of the operational. Jamsostek currently does not offer and manage implementation working group should be policy, good any defined benefit pension program. governance, protection of the interests of participants and efficient implementation of the road map. INSTITUTIONAL TRANSFORMATION Design, Costing and Financing of the SJSN Employment Programs. The nationwide BPJS Legal Status Ketenagakerjaan programs will differ in both design and coverage from the existing programs and will include a Organizational Structure new defined benefit pension program. The complexity of defining new benefit designs and setting contribution rates Job Descriptions for SJSN employment programs will need to take into Business Process account different characteristics, needs, and ability and willingness to pay contributions between formal and IT Systems informal sector workers. Implement New Pension Program A series of policy dialogues to discuss issues and possible program design options will be needed. Inclusion of Informal Sector The working groups will also require financial analysis and computer models to understand the financial impact of proposed designs on workers, Issuance of Regulations. The BPJS law requires the employers, the government and the macro economy. The government to issue many regulations and/or decrees that policy dialogues and financial modeling will enable the will play a key role in determining the future set-up of the government to decide on the benefits to be provided under BPJS. All regulations for the employment programs must be each of the four employment programs and the required issued within two years of enactment. However, until now, contribution rates from formal and informal sector workers no draft implementing regulations and/or decrees have been and the government. The government should ensure that shared publicly. required contributions from various groups of contributors in the aggregate are sufficient to fully pay for all benefits and It is important for the government to develop policy administrative costs for that program. No cross-subsidies notes underlying needed regulations and/or decrees. among social security funds are permitted. The government The implementation working group should work together should also take into account integration of universal health in preparing policy papers as guidance for developing care with the health portion of the worker accident program, required regulations. The policy papers should identify how the worker accident program will be applied to informal issues, possible solutions and risks, financial impacts and sector workers and whether informal sector workers will required government actions. The development of policy participate in the new pension program. papers should be completed in conjunction with the analysis of design, costing and financing of SJSN employment It will also be necessary for the implementation working programs. groups to understand other countries’ experience with the implementation of national social security systems. Asset Management. The BPJS law improves the legal and Indonesia’s proposed design is unique in the world in many financial structure of the social insurance system by legally ways. No other country with such a large informal sector has separating the assets of BPJS from the assets in the Social implemented a national social insurance scheme covering all Security Funds (SSF). workers. Nonetheless, there is still much to be learned from the implementation experience of other countries which Social Security are comparable to Indonesia in terms of size, geography, Funds economic level and political structure. Social Security Institutional Transformation. Transforming PT Jamsostek System into BPJS Ketenagakerjaan is a major task. Significant changes in legal, governance, organizational structure, BPJS Assets job descriptions, business processes and IT system will 2 The World Bank The separation of assets in different legal entities and the use for informal sector workers. The government should start of a custodian to hold fund assets are important safeguards exploring the contribution collection model for the informal for fund members and are consistent with international sector now. Otherwise, there will be low participation from best practice. However, it will be a significant challenge the informal sector, which will not help to reduce financial to assure that the legal structure is properly implemented security risk for this group of workers and there will be and the system operates as intended. To assure assets significant anti-selection that will undermine the finances are managed correctly, the government should issue of the social security funds. The government will need to investment and risk management regulations defining study a wide range of possible collection mechanisms, the financial framework and governance structure of the examine other countries’ experience and pilot test new system. It should be noted that different investment possible options for collecting contributions from informal policies and fee structures are appropriate for different sector workers. funds. Therefore, it is necessary to ensure the integration of reserves, investment policy and asset-liability management. BPJS Ketenagakerjaan will also need to ensure that the required contributions are paid on time and in the correct Risk Management and BPJS Supervision. It is important amount. By law, BPJS have been given the right to impose for the government to formulate and implement policies and administrative sanctions in cases of non-compliance. procedures to ensure the fiscal sustainability of the SJSN Despite the availability of administrative sanctions, collecting social insurance funds and assure that the financial risks from millions of informal sector workers and from micro- of the social insurance programs are properly managed. If enterprises as well as improving formal sector collection will the contribution rates are set too low relative to promised prove very challenging. benefits, or if the contributions and/or benefits are not periodically adjusted, or if program funds are mismanaged, Above all, integrated systems and operations for BPJS the social security funds could become insolvent. This SJSN Kesehatan and BPJS Ketenagakerjaan is a must. implementation creates a potentially large contingent liability It doesn’t make sense for the two BPJS to separately for the State budget, which is the ultimate guarantor of issue ID numbers and collect contributions from the fund solvency. Consequently, the Government has a strong same participants. Instead, BPJS Kesehatan and BPJS incentive to assure the programs are properly managed. Ketenagakerjaan must work together to assure that the ID This will require the creation of risk management numbers are issued and are unique -- everyone has one capability within the government and strong supervision and only one number -- and that one system is used for and control of BPJS operations to protect the rights of collecting contributions from participants, employers and participants, prevent fraud and corruption, assure proper the government for all five SJSN programs. The collected financial management and control operational expenses. contribution monies should then be automatically split and transferred to the correct social security fund. Good governance and oversight of the system is critical given the huge amounts of money that will flow into the two BPJS Responsibility and Accountability. Another area of and the critical role they play in the social protection system concern with regard to the implementation of the new BPJS for the country. The law states that the new Financial Services Law relates to governance structures. While the BPJS Authority, Otoritas Jasa Keuangan or OJK, along with DJSN report to the President, it is not clear who in the President’s are responsible for external supervision, but doesn’t clarify office will actually be responsible for supervision and control their respective roles and functions. More clear supervisory of BPJS operations. DJSN is responsible for synchronizing roles and responsibilities for OJK and DJSN are needed the administration of the SJSN system, but it is not clear in the implementing regulations and/or decrees. Their what their specific functions are and whether they will respective roles and responsibilities must be clearly defined. have the expertise and staff necessary to carry out their functions. Greater clarity regarding roles, responsibilities and Administrative Systems. The issuance of unique individual accountability is needed. identification numbers (ID) to all members is important to properly administer the social security programs. The Capacity Building. Risk management and overall Ministry of Home Affairs (MOHA) is working on an electronic capacity building are needed to assure the SJSN identification program, but the time frame for its roll-out is programs are properly managed. This will require unclear. Therefore, if the unique ID developed by MOHA is enhanced capabilities in the Ministries of Finance, Manpower not ready in time for the start of the SJSN programs, BPJS and Health, in the implementation working groups, among will likely need to develop a separate unique ID number senior government policymakers, among those in PT Askes solely for the SJSN system. and PT Jamsostek responsible for the BPJS transformation, and in DJSN, OJK and other relevant government offices/ The collection of contributions raises another set of concerns. agencies to assure proper technical oversight and While contribution collection mechanisms for formal workers supervision of BPJS operations. Until now there has been is already available, there is no such mechanism available limited discussion of these needs. Policy Note on SJSN | Issue 1 | May 2012 3 How The World Bank can Support the Government The World Bank will work together with various government Administrative Systems. We can advise the government offices/agencies and other development partners to meet on the use of unique ID numbers for the SJSN system and the government’s technical and financial needs for the the development of contribution collection systems that implementation of BPJS Ketenagakerjaan. take into account global experience with collection from the informal sector. The Bank has strengths in many areas relevant to the implementation of BPJS Ketenagakerjaan. We have global, Capacity Building. We can assist with the design and regional and local expertise in pensions, computer modeling, implementation of programs to strengthen the knowledge actuarial analysis, program administration and institutional and capacity of the institutions, implementation working transformation. Our prior work with the government on SJSN groups and senior government policymakers responsible for actuarial modeling and training, and on passage of the BPJS the design and delivery of social security programs. We can law will also allow us to add value to the implementation provide technical assistance to the government to help it process. Moreover, our PROST (Pension Reform Simulation develop risk management capacity to manage the financial Toolkit) model is recognized internationally as a valuable tool risks of the SJSN programs. for fiscal analysis of pension programs such as the SJSN pension and civil service pension programs. The Bank can provide assistance to the government in several This Policy Note was produced as part of the World areas of the implementation of BPJS Ketenagakerjaan as Bank inputs to the Government of Indonesia on the follows: implementation of SJSN (Sistem Jaminan Sosial Nasional, National Social Security System) and is the Policy Dialogue. We can provide policy advice and technical first in a series of Policy Notes on SJSN. This note support on several implementation issues as follows: was prepared by the Poverty–Social Protection unit of the World Bank Office Jakarta and written by Mitchell • Review and comment on a draft roadmap or assist in Wiener (Senior Social Protection Specialist, EASHS) developing the required roadmap for the implementation and Iene Muliati (Consultant, Social Protection of BPJS Ketenagakerjaan. Specialist, EASHS). Funding for this note was made available by the Australian Agency for International • Prepare financial models to support the analysis Development (AusAID). and formulation of the benefit package and required contributions for the SJSN employment programs Significant input for this note was provided by (pension, old-age savings, work accident and death partners from the Government of Indonesia, benefits). We already have actuarial and financial models particularly Rahma Iryanti (Director for Manpower that can be used for analysis of benefit designs, estimating and Employment Opportunities Development) from required contributions and analyzing the financial impact Badan Perencanaan dan Pembangunan Nasional of these four programs. (Bappenas), the National Development Planning Agency. • Support the development of the legal framework and implementing regulations for the BPJS law. We already The findings, interpretations, and conclusions prepared a draft policy note containing a high level overview expressed herein do not necessarily reflect the views of BPJS Ketenagakerjaan implementation issues, which of the Board of Executive Directors of the World Bank includes an overview of the current situation, challenges or the Governments they represent. and required actions. For any questions regarding this note, please contact • Prepare a comparison study of international experience Mitchell Wiener (mwiener@worldbank.org) or Iene with national social security systems in other countries Muliati (imuliati@worldbank.org). that are comparable to the SJSN system. • Assist on the transformation of PT Jamsostek to BPJS THE WORLD BANK OFFICE JAKARTA Ketenagakerjaan by providing technical assistance Indonesia Stock Exchange Building Tower II/12th Floor as requested on the organizational structure, job Jl. Jend. Sudirman Kav. 52-53 descriptions, business processes and needed IT systems, Jakarta 12190, Indonesia and a roadmap for the transformation process. We have Tel: (6221) 5299-3000 experts in our Jakarta office who would be able to provide Fax: (6221) 5299-3111 assistance for the transformation. 4 The World Bank