Questions and Answers about Pension Plans and Life Insurance in Israel

Pension Plans and Life Insurance Policies

U ask: I've read recently that the Government has now
introduced compulsory pension plans for all workers
in Israel Can you elaborate?

U ask: And what for the future?

U ask: What are the level of payments into the pension
plans?

U ask: How is this amount divided?

U ask: What sort of fund is allowed?

U ask: What else is there new in the regulation?

U ask: Anything else?

U ask: How does one set up a new pension plan?

U ask: I've read recently that the Government has now introduced compulsory pension plans for all workers in Israel Can you elaborate?

Norman answers: Yes, in January 2008 the issue of pension plans for all salaried workers was finally put right. Until then only public service and other mandatory fields together with workers who were able to negotiate these benefits with their employers, were covered under a fully comprehensive scheme. This meant that some 30% of the salaried working population
( generally the newer or lower paid workers ) had absolutely no long term savings programs for their future. This situation has now changed and employers are now obligated under the law to open contributory pension plans for all workers over the age of 21 who up to January 2008 were employed for 9 months.

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U ask: And what for the future?

Norman answers: Over the coming years this waiting period will drop to 6 months by 2009 and then below that.

U ask: What are the level of payments into the pension plans?

Norman answers: Initially, in order to make matters easier for employers there is a five year transition period whereby in year one the total amount being paid into the pension plan by the employer and employee must be no less than 2.5% of the gross salary, rising every year by the same amount to reach 15% by the year 2013 and onwards.

U ask: How is this amount divided?

Norman answers: The division is that the employer puts in 5% towards his obligation to severance pay and 5% towards pension contributions. The employer has 5% deducted from his/her salary as their contribution.

U ask: What sort of fund is allowed?

Norman answers: The pension plan must be for a recognized pension fund that initially will pay out a monthly pension at the retirement age ( 67 for men and 64 for women ). The plan will normally include also an element of life insurance and temporary disability insurance.

U ask: What else is there new in the regulation?

Norman answers: An important element for all workers salaried and self employed is that from now onwards the worker will be obligated to save towards receiving a minimum monthly base pension of NIS 3,850 and only after that may receive pension monies as a capital payment.

U ask: Anything else?

Norman answers: Yes, there are quite a few more points, the two major ones being that the tax benefits for workers on their pension plans have now been equalized for all recognized schemes and also that once a worker has an existing pension plan, on changing workplace the new employer is obligated to carry on the existing plan.

U ask: How does one set up a new pension plan?

Norman answers: Consult you qualified Agent who will elaborate on the various alternatives and provide what the law requires as "best advice". He should also draw up for you a "financial plan" to take into account both the pension needs and the best way to protect you and your family with the various
"risk" insurance needs such as life insurance and temporary disability insurance.