Indonesia's Financial Services Authority, known as OJK, has scrapped the 20 percent cap on lump-sum withdrawals of pension benefits built from severance pay, long-service awards, and compensation for rights. The rule took effect the same day it was issued, Monday, July 13, 2026, under OJK Board of Commissioners Decree No. KEP-54/D.05/2026, announced in a press release.

The decree follows Constitutional Court rulings No. 139/PUU-XXIII/2025 and No. 164/PUU-XXIII/2025, read out by the panel of judges on Monday, June 29, 2026. The court reviewed Article 161(2) and Article 164(1)(d) of Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector, which had required pension benefits to be paid in installments.

Who can use the lump-sum option?

A lump-sum pension benefit pays a participant's full entitlement in one transaction rather than in installments under the previous scheme. The option applies only to participants in voluntary pension programs, whether through Financial Institution Pension Funds (DPLK) or Employer Pension Funds (DPPK), whose benefits are built from severance pay, long-service awards, or compensation for rights. Regular pension benefits funded by routine participant contributions are not covered by the new rule.

Eight former employees behind the lawsuit

Case 164/PUU-XXIII/2025 was filed by eight people: Lukas Saleo, Warjito, Haeruddin Fallah, Achmad Yani, Nikolas Pamula Lambe, Ismet Akuba, Arfan Rasyid, and Imam Budiyono. All are former employees of PT Freeport Indonesia, PT Kuala Pelabuhan Indonesia, and PT Unilever Indonesia who challenged the requirement to pay pension benefits in installments, arguing that part of the funds came from severance pay they should have received in full once their employment ended.

The Constitutional Court agreed with the petitioners. The panel ruled that Article 161(2) of the law is conditionally unconstitutional insofar as it is read to require installment payments for the severance component. The judges said severance pay, long-service awards, and compensation for rights are not pension benefits but worker entitlements that must be paid in full once employment ends, especially for workers whose employers never enrolled them in a pension program.

Agus Firmansyah, head of OJK's Integrated Financial Services Sector Surveillance and Policy Department, explained the reasoning behind the follow-up rule. "This policy aims to provide legal certainty, protect the interests of Pension Fund participants, and preserve the continuity of Pension Fund operations while upholding the principles of prudence and good governance," he said. He added: "This decree is OJK exercising its authority to provide legal certainty on the implementation of the Constitutional Court's ruling, while also safeguarding the interests of Pension Fund participants, the continuity of Pension Fund operations, and the stability of the pension fund industry."

A 410 trillion rupiah fund and liquidity risk

Before KEP-54 was issued, OJK held back. At a press conference following its Board of Commissioners meeting on Tuesday, July 7, 2026, Ogi Prastomiyono, OJK's Chief Executive for Insurance, Guarantee, and Pension Fund Supervision, said the authority was still studying the liquidity impact on the industry before setting concrete policy. The six-day gap between that statement and the issuance of KEP-54 shows OJK chose not to rush the removal of the 20 percent cap, even though the Constitutional Court's ruling had come out two weeks earlier.

The caution was warranted. Voluntary pension programs, combining DPLK and DPPK, managed 410.65 trillion rupiah in assets as of May 2026, up 4.94 percent from 391.33 trillion rupiah a year earlier, with 5.39 million participants. Until now, that money has been managed on the assumption that withdrawals would happen gradually. If participants rush to choose the lump-sum option instead, pension funds will need to be ready to release large sums on short notice.

OJK has built in one safeguard: every pension fund must first get OJK approval for changes to its Pension Fund Regulation (PDP) before it can offer the new payment option. Participants cannot withdraw their benefits in a lump sum right away. They still have to wait for their pension fund to amend its internal rules and get the regulator's sign-off. Ogi said the Constitutional Court's ruling was deliberately kept narrow, covering only voluntary pension benefits sourced from severance pay and similar entitlements, so each pension fund still needs to assess its own liquidity and adjust its PDP before applying the change.

What's still unclear

OJK says it will revise POJK 27/2023 on Pension Fund Business Operations, the regulation that has served as the basis for the 20 percent cap. It is not yet clear whether the revision will stay limited to the severance component, as the Constitutional Court's ruling specifies, or extend to other types of pension benefits.

Also worth watching: how many pension funds submit PDP changes in the coming months, and whether any report liquidity strain once participants start choosing the lump-sum option en masse.