Opposition to a state pension law
The proposed pension laws tabled before the Knesset can be divided into two main categories: State pension laws the purpose of which is to provide pension insurance for the citizens of the State of Israel, largely independent of their employment and pension contributions made during their lifetime. These laws are founded on the societal approach that addresses social justice and income distribution. Conversely, there are proposed laws that deal with a mandatory pension for employees in Israel alone. The main component of these laws is the guarantee of income for the employed population after retirement. The team members were in full accord in their opposition to a state pension law, and agreed that if a mandatory pension law is enacted its income distribution component should be minimal and relate only to the distribution of actuarial risks between the fund holders.
The committee members did not reach consensus with regard to the application of a mandatory occupational pension law. Two main positions were expressed during the discussions.
The first position supports a mandatory occupational pension of a scope largely matching the existing pension structure, and aims to increase both the number of people insured through pension savings and the rates of pension coverage for individuals. This position is based on the argument that there are currently market failures in pension savings that justify the existence of a mandatory pension from an economic standpoint. In addition, those who are not covered belong to the economically vulnerable sectors. Therefore, a mandatory pension is a progressive move that will improve income distribution among the older population.
The second position is opposed to the enactment of a mandatory pension law for the following reasons: The market failures are not significant and the factual basis for their existence is insufficiently established. The lack of pension coverage is not extensive, especially when deposits made to provident funds are taken into account, and stems partially from low income rates. Furthermore, there isconcern that a mandatory pension will become a state pension and an additional source of taxation and revenue for the public sector, which will cause severe damage to the economy.
The committee did not formulate an unequivocal stance on the issue of a mandatory pension law. Nevertheless, even the proposal that supports a mandatory pension law is fundamentally different from the proposals that have been tabled before the Knesset. The principles of the proposed law are presented in this document.
Labor laws define the right of workers to severance pay in the amount of the last salary for each year of work, provided that the worker was dismissed from his place of employment or retired from it at retirement age. The laws enable granting tax benefits for workers’ severance pay (up to a salary limit determined by law). Employers and workers use this legal framework and the tax benefits derived from it as part of the work agreements. Some arrangements include payments to pension and compensation funds, executive insurance plans and more, which the worker is entitled to keep even if he leaves his place of employment voluntarily. Severance pay constitutes part of the employer’s contributions to the pension funds, and totals approximately 50% of the worker’s pension savings (pension funds and provident funds).
We recommend that the arrangement of payments made toward severance pay be expanded and imposed uniformly upon all employers and employees in the labor market. In other words, there will be a mandatory contribution towards severance pay by employers for all employees – which will be recognized as a long term saving – as is currently practiced for some employees in the labor market, whether they are dismissed or leave voluntarily. Severance pay will thus become a long-term saving that can be used by the worker after retirement or during extended periods of unemployment, in accordance with existing severance pay arrangements. This arrangement will be implemented on a pure DC basis, which will be managed by the worker and not include elements of income distribution between workers.
The majority of team members support this proposal, since it makes it possible to equalize the employer’s costs over different workers in the market (for example, workers that a