This move could have enormous consequences for the individual, which will be felt today, but not only. It is clear that harming the future of employees, even the weakest of them, is no longer a taboo – and one must be careful about that. Even if pension savings are a huge and accessible cash well, it deserves to be treated with reverence and as a last resort and not a first. And it is not certain that this understanding permeates policy makers well enough. Why do we think so?
1. A change in perception in the world of pensions
First, the pension sector in Israel has experienced tremendous developments in the last 25 years. During this period the economy underwent tremendous upheavals from a guaranteed and clear world to an uncertain and volatile world. This happened not as one piece, but while separating populations that differ in age, year of employment and workplace.
The public has moved from a pension world based on securing pension rights as a derivative of the saver’s salary just before retirement (in a world of rising wages and without dismissal), to an accruing pension world – where the income during retirement is a result of the money flowed into actual savings and the return accrued over the years. A promise derived from the last or highest salary he received saves.
Somewhere in the middle of the road, the state has made further moves, chief among them making pension savings compulsory, first for employees and then also for the self-employed. On the face of it, this is a welcome step, which in a paternalistic way forces the public to prepare for its old age ahead of time. But, it seems, as private pension savings become inclusive it also makes it easier for the state to release commitment and shake off, sometime in the future, its role as a factor that provides minimal economic security to the public, through Social Security old-age pension.
And this is not a fear in ignorance. Aside from the fact that Social Security will not be able to provide in the future what it provides today (and not enough for the needs of many), even before the Corona crisis and its enormous budgetary challenges, the country itself raises the issue of changing and reducing its involvement in the field. The designated bonds or the reduction of tax benefits provided to savers (after all, why incentivize the public to save for retirement through tax benefits if the public must save anyway?).
That is, even before the Corona crisis, it seemed that we were on the way to further change in the pension world, and to further erosion of the umbrella that the state provides to savers. Then came the extraordinary crisis on every scale, which really changes world orders.
2. New rules and departmental moves
And so we come to one of the aspects that often arise as possible solutions, out of a wide range of moves, according to which the usual rules must be changed in relation to the public’s long-term savings, such as allowing the public to withdraw illiquid funds from the study fund, without prior consideration. Which requires tax payment. The move was approved this week by the Knesset Finance Committee.
But not only that, another proposal recently came up for consideration and perhaps an actual reduction of employees’ pension deposits, which was raised by none other than the central bank (which as far as is known has already been removed from the agenda due to market fears of the central bank reacting to it).
As part of an attempt to reduce costs for employers, an idea arose that was intended to exempt employers from setting aside for a period of about two years for the pension of employees earning a low wage of NIS 6,500-7,000 per month (in addition to recently talking about reducing the minimum wage in the economy). This, in order to prevent the dismissal of these employees.
These two moves – the one that happened and the one that went down the agenda – have many implications, ranging from hurting savers (each depending on the product in which he saves his money), through required legislative amendments to various operational issues. For everyone, reducing or terminating deposits means that we will have less money or rights at retirement age and this means a lower pension of tens and even hundreds of shekels per month throughout the pension period.
But not only that, there is a possibility that any such move – if returned to the table – will result in damage to the saver’s insurance coverage in the event of death or disability – and if God forbid one of these events occurs, the saver will not be insured at all or will be entitled to lower compensation.
In any case, even if the Bank of Israel’s proposal on this issue is not on the agenda, it seems that ideas are currently being considered that would harm public savings, even if it is the weaker populations.
3. There are those who want to continue to excrete
In this context, it should be noted that there are employers in the economy who understand the great damage of not continuing to transfer the benefit contributions to the pension plans and want to continue the deposits for their employees – even if they are staying in the Knesset.
But there is an obstacle to this desire, this action leads to a tax charge of the employee since the employer does not pay him wages at that time. The Histadrut, it should be noted, has already approached the Treasury several times to correct this and allow the transfer of benefits to workers in the IDF as well, without tax liability. But it was precisely this move that encouraged savings and kept workers encountered a stubborn refusal by the state. A substantial change as well that allows for early withdrawal from a non-liquid study fund even without tax payment.
4. It is not always profitable to withdraw the money
On the other hand, from the private angle of the saver: it is okay to use in times of crisis in savings. Even those that are painted as medium- and long-term savings, and that on days like their repair it is better not to touch them. After all, these days are far from routine days, and the money saved is money that belongs to the saver. Therefore it is also worthwhile to provide him with immediate access to them these days. But keep in mind that the decision to use these funds should be a decision of the saver himself, and the state should not intentionally go there.
But even if it is justified to withdraw savings these days, it should not be done lightly. One should not run and rush and redeem the savings, whether from the study fund or the compensation component or from anywhere else, and this is because the withdrawal of savings, certainly one that receives tax benefits, has a tremendous price. The price of the loss of the fund and the future return that will accrue in the garden over the years, and which will be difficult to recover in other ways. All this in a world where the state regularly reduces its responsibility for the economic security of the individual – and when there are question marks about the ability of Social Security to continue to provide even in a decade or two the relatively low old-age pension it currently provides.
That is, it is about taking future capital in favor of current and immediate needs. Such a thing has consequences that are well worth examining. But, the state does well when it provides the public with easier and faster access to the savings that at the end of the day belong to it.
5. Savings can be costly
Finally, from the first days of the crisis, it seems that the country wants the public to solve the problem itself. This happens mostly through directing the public for additional loans. In this context, freezing loan repayments is the same as taking out a new loan, which will increase the monthly expenditure on repayments of household or company debt at some point in the future.
Now she is also considering entering into his retirement savings and going back in the importance of that savings.
The combination of the two can create too heavy and long-term a burden on the general public who are not always aware of the economic implications.