PRIVATE PENSION

In 2008, Israel implemented mandatory pension coverage for all workers not covered by union-negotiated pensions. This applies to employees and self-employed individuals who are now legally required to have private pension funds to which they and their employers must contribute to.

Self-employed individuals are also legally required to contribute to a private pension plan on a sliding scale based on their income.

As of 2017 (and still valid in 2024), the minimum monthly salary contribution percentages are as follows:

Employees:

• From the Employer: 6% for Pitzuim – פיצויים – damages compensation and 6.5% Tagmulim – תגמולים – Pension payments
• From the Worker: 6% total

Self-Employed workers:

• Must contribute a minimum of around 500 New israeli Shekels (NIS) per month

The Israeli private pension system consists of the following types of pension savings plans:

Pensia Makifa – פנסיה מקיפה – Comprehensive Pension which provides the following coverages:

• Disability, in case someone is unable to work for more than three months due to sickness or accident, usually covers 75% of current salary
• Life Insurance/Survivors Benefit, in case of death, the surviving spouse and children (under age 21) will receive a monthly payment
• Old Age pension, upon reaching retirement age or when the worker stops working after that age.

Pensia Mashlima/Klalit – פנסיה משלימה/כללית – Supplemental/General pension:

• Which is usually just a savings plan with no additional coverages. Recommended for older workers close to retirement age

Note: When you retire and begin withdrawing your pension, funds are usually paid in monthly payments and not in a lump sum!

The main differences between the two types of pensions arise from the type of risks they insure against. For instance, a Pensia Makifa is required to provide members with death and disability benefits collectively financed by plan members while a Pensia Mashlima does not provide death and disability benefits, rather only a personal savings plan.

Both plans however, are subject to similar regulations and all pension savings plans are managed by external funds and providers under the supervision and regulation of the Capital Market Insurance and Savings Division (the CMISD), which is a division within Misrad HaOtzar – משרד האוצר – Israel’s Ministry of Finance.

Pension assets are held by external pension managing companies and are completely separated from employers. These companies must have insurance licenses which allow them to operate and manage pensions and various insurance policies.

Note: if you try to open up a pension plan by yourself, in most cases the insurance companies will probably send you to a licensed agent. Given the complexity and many pension options available it is highly recommended that you use an agent to help choose the right pension plan. In addition, an agent can help you deal with the insurance companies both regarding negotiating their D’mei Nihul – דמי ניהול – management fees and in case a claim needs to be filed etc.

Word of caution: Once you open a pension plan it is important to make sure that it stays current, i.e. if you leave a job either temporarily (Chusfshat Leida – חופשת לידה – Maternity leave etc.) or permanently, you need to keep it active, otherwise certain Zechuyot – זכויות – benefits can be lost. Your agent can help you determine what your minimum payment needs to be to keep it active and how to pay it.

This overview was created and translated by Shivat Zion with the help of Hadas Mandel, a senior insurance agent and personal risk manager. He can be reached at: hadasman6@gmail.com