ABSTRACT
Pension program participants need an effective pension plan that can give them adequate income replacement to maintain a similar standard of living in retirement. However, the Financial Services Authority report from 2015–2018 reveals that the voluntary pension program participants in Indonesia tend to be riskaverse. They prefer lower risks and lower returns; as shown in the total portfolio, only 3.9% is invested in a riskier instrument with potentially higher returns like stocks while the rest investments are in the money market and fixed income. In countries where the pension industry is more advanced, like the United States, UK, and Canada, pension managers offer target date funds (TDF) for participants who seek to grow assets over a specified period. At the time this study was done, there was no TDF in the Indonesia pension market nor research in Indonesia that focused on them. The objective of this study is to find out whether TDF improves the pension investment returns, TDF response to volatility in the capital market, and TDF cost efficiency. The methodology of this study was a documentary analysis and scenario observation of what the results would be if TDF applies Indonesian capital market historical data. Therefore, the conclusions are rather indicative than definitive. The scenario considered two hypothetical glide paths taken from the U.S. TDF universe, the maximum and the minimum allocation of stocks in the portfolio. The data used Jakarta stock exchange composite index to represent the growth objective in TDF and time deposit to serve the stability objective. The result indicated all of the TDF approaches during the accumulation period had higher average end balances with no worst-case end balances.
