500 shekels added to salary at the expense of future pension — the essence of the new idea

National Economic Council Chairman Professor Avi Shamkhun proposed canceling mandatory pension contributions for workers under 40. The initiative would increase net salary by 500 shekels per month but reduce future pensions by 1,800 shekels. Experts and the Histadrut criticize the plan, pointing to the risk of increased poverty among retirees.

National Economic Council Chairman Professor Avi Shamkhun is promoting an initiative that cancels mandatory pension contributions for workers under 40. Currently, 6% of gross salary is automatically deducted; after cancellation, net salary will increase by about 500 shekels per month. Employer contributions (6.5% for pension and 6% for severance pay) will remain, as will insurance coverage. Workers can continue contributions voluntarily, but opting out will be the default option. The cost of the decision is a reduction in the average monthly pension from 16,600 to 14,800 shekels net (a decrease of 1,800 shekels). Experts point to the compound interest effect: contributions at age 25 work in the market for over 40 years, while at age 40 they lose this advantage. Director of the Financial Planning Center Eliyahu Atia calculated that a monthly contribution of 600 shekels from age 23 to 40 could grow to 410,000 shekels by age 67, corresponding to a pension of about 2,000 shekels per month. The Histadrut warns that 21% of retirees already live below the poverty line, and 20% depend on supplements. Dr. Alex Kaplon notes that behavioral economics shows people tend not to change the default option, and only the financially literate and wealthy will save, increasing inequality among retirees. Shamkhun's study assumes a continuous career, but young workers often change jobs and withdraw severance pay. The Ministry of Finance and the Bank of Israel are examining whether pension savings have become excessive but note that the solution should be targeted.