introduction

Many of us know and understand that beyond the salary we receive at the end of each month in return for our hard work, there are also additional provisions for pension savings and income security for the years when we grow old and retire.

Unfortunately, however, many of us don't really know where and how much money is going, get very confused between the different concepts and types of retirement savings that exist, and only wake up and start to put things in order when we approach retirement age. At that time, in many cases, we discover that we haven't saved enough or that we haven't been legally set aside, and the experience is not pleasant at all.

So, although as a lawyer specializing in labor law, I do not pretend to give you pension advice here and recommend where and how much to save, I do want and it is important to me to make things right for you. That you know the full picture and know more or less where you are being saved and how much is required.

Of course, for those who are unsure or dissatisfied about their pension provisions, and want to consult with me and check that they are being paid legally, I am here for any question or request. Free initial consultation!

Note: I would like to emphasize that this guide only applies to salaried employees.

The order to extend mandatory pension

So this is how things are in general:

You work hard and get paid at the end of each month.

At what age does eligibility for a mandatory pension begin?

In accordance with the order to expand mandatory pensions, every employee who has turned 21 or every female employee who has turned 20 is entitled to provisions for pension savings (immediately below we will explain in a simple way what the types of pension savings are possible and will briefly discuss the differences between them).

What is the rate of contributions according to the mandatory pension expansion order?

As of January 2017, the provision rates for pension savings (regardless of which type of savings you have chosen) are:

On the employee's part – 6% for benefits (up to 7% is possible if the employee wishes to contribute more)

From the employer's side – 6.5% for rewards and 6% for compensation (up to 8.33% is possible if the employer wishes to contribute more, but this is not mandatory and the minimum required by law is 6%).

What are the existing pension savings plans?

Now you must decide what type of retirement savings you want to set aside for, and the options are: a provident fund, a pension fund, or executive insurance.

Can it be split into several types of savings?

You can, of course, split and save for several types of savings, for example, half of the provisions for a pension fund and half for executive insurance.

In addition, you can choose between the various competitors in the industry, and also decide with the agent what percentage of the money you want to invest in high risk (stocks) and how much in low risk (bonds). For example, in Israel, many savers prefer to invest in the general track, which means: up to 30% of the provisions go to investing in stocks, 70% in bonds.

What are the costs involved in retirement savings?

As for costs, in all pension savings, it is customary to take a premium of a certain percentage of the current monthly deposits, as well as a certain percentage of your total savings accumulation to date.

Are there tax benefits for retirement savings?

Yes. Those who save for retirement savings are also entitled to various tax benefits, and you can ask and find out about this with any qualified tax advisor.

Does my employer have to contribute to my training fund?

Regarding the training fund, the employer is not obligated to contribute and this is a matter of choice (except in certain cases where the employer is obligated to do so by virtue of an expansion order or a specific collective agreement). We will explain more about this saving below.

The different types of retirement savings

Pension fund

The pension fund is one of the main retirement savings channels in Israel. It is a savings account into which you contribute each month, and is designed to begin paying us a monthly pension when we reach retirement age (67 for men, 64 for women).

How is the amount of the allowance calculated?

The amount of the monthly pension we receive is determined by a coefficient, which is essentially an estimate of the number of months that the pension fund estimates that we will live after retirement. For example, if we are assigned a coefficient of 200, this means that we will live an estimated 200 months after retirement. Now we take the total money we have accumulated over the years in retirement, divide by our coefficient – 200 as mentioned, and the result obtained is essentially the monthly pension we will receive.

What if the life expectancy is more than the prescribed coefficient?

If, thank God, you continued to live beyond what the promoter determined, and you run out of money in your savings, don't worry! In pension funds, there is a mechanism of "mutual guarantee" between savers, and therefore they will "put their hand in the pocket" of another saver and give you money from him.

It is important to note and emphasize that the coefficient that is set for us in a pension fund changes and increases over the years. This is because medicine and human life expectancy are getting longer, so if you are set today for a coefficient of 200 months of living after retirement, it is very possible that in 30 years when you retire, your coefficient in your pension will change and will already be 250. You will not be able to demand the coefficient that was set for you at the beginning, because in a pension fund the coefficient is not guaranteed.

Does the pension fund only allow you to receive a monthly old-age pension?

No. In addition to receiving a monthly old-age pension from your pension, it also includes the option of receiving disability insurance, as well as the option of providing a survivor's pension to your widow and orphans who will be left after your death. With your agent, you can decide on the right mix and dosage that you want to divide your pension savings between an old-age pension, a disability pension, and a pension for those left behind after you.

Types of pension funds

In the past, it was possible to join 4 types of pension funds:

• A veteran pension fund in an arrangement
• Balanced Veteran Pension Fund
• New General Pension Fund
• And a new comprehensive pension fund.

In addition, various employers, especially in the public sector, also have budgetary pension arrangements.

It is important to note that these pension funds are active today for those who joined them in the past. However, it is not possible to join them today, and as of today, the only pension funds that can be joined are the new pension funds that we explained above, and therefore all other types of pensions are no longer relevant.

Executive insurance

Executive insurance is very similar in its characteristics and mode of operation to what we explained above about a pension fund, with the exception of a number of main differences:

1. Unlike a pension fund, where we said that the coefficient changes and is determined only at retirement age, in executive insurance our coefficient will be determined already at age 60 and will remain guaranteed and will not change upon retirement as in the aforementioned pension fund. By the way, until recently, executive insurance could also guarantee us a coefficient from the day we signed it, even at age 20, let's say, but the state decided no longer, and only at age 60 will it be possible to guarantee a coefficient.
2. In executive insurance, as opposed to a pension fund, there is no "mutual guarantee" mechanism. So if you were paid monthly benefits and you eventually run out of money in savings, they won't "put their hand in the pocket" of another saver to give you more, and the monthly benefit will stop.
3. Executive insurance can also include life insurance (risk in the event of death), insurance against loss of work capacity, and more… Not in a pension fund.
4. The premium we pay for executive insurance will often be more expensive than for a pension fund.

Provident fund

A provident fund is also a type of additional pension savings into which the employee and employer deposit at the same rates and are entitled to tax benefits as the pension fund and executive insurance, which we explained above.

Does the provident fund only allow for receiving a monthly old age pension?

Yes. Unlike a pension and insurance fund for executives, all the money saved goes directly to the old-age pension, and there are no insurance components for disability or a survivor's pension as there are for a pension and insurance fund for executives.

However, today, in principle, it is no longer worthwhile to deposit into a provident fund, because according to Amendments 3 and 5 to the Financial Services Supervision Law (Provident Funds), all funds saved into a provident fund from 2008 onwards cannot be withdrawn as a single sum, but rather as small monthly payments.

So what is the difference between a provident fund and a pension fund and executive insurance?

It is true that even in the pension fund and executive insurance that we explained above, money can only be withdrawn from savings as monthly allowances and not as a single amount, but unlike provident funds, it has the additional insurance components of disability and a survivor's pension that the provident fund does not have, so what is better?

Continuing Education Fund

A continuing education fund is the only savings channel left in Israel for a medium-term investment term (6 years). All the others we explained above are long-term investment channels.

As mentioned, the employer is not obligated to set aside money for us for a further education fund, unless there is a specific expansion order or collective agreement that requires it.

What is the percentage of contributions to the continuing education fund?

If you were also given a training fund, then the contributions will be:

On the employee's part – 2.5%;

From the employer's side – 5% (up to 7.5% is possible if the employer wishes to contribute more).

In conclusion:

• You can allocate to a pension fund, executive insurance, or provident fund.
• As you have probably noticed, there is no pension savings that is unequivocally better than the others, and each has advantages and disadvantages.

I will be happy to assist you with any questions or requests.