Israel prepares a 500-shekel raise - pensions at risk

In Israel, a proposal by National Economic Council head Professor Avi Simhon is being discussed, allowing workers under 40 to receive a monthly salary increase of about 500 shekels by reducing mandatory pension contributions. The Finance Ministry and other agencies express concerns that this will lead to a significant reduction in the pension capital of an entire generation.

In Israel, a proposal by National Economic Council head Professor Avi Simhon is under discussion, which would allow workers under 40 to receive a monthly salary increase of approximately 500 shekels. The initiative involves cutting mandatory pension contributions by about a third by eliminating the employee's personal share of contributions. Simhon cites a study by economist Avraham Zofnik, according to which the current pension system provides a sufficiently high level of benefits. However, the Finance Ministry and other government agencies express serious doubts. The main concerns are that a temporary salary increase could lead to a significant reduction in pension capital. Economists note that with voluntary contributions, many would prefer immediate cash. Additionally, investment income is lost: funds not contributed in youth do not participate in capital accumulation. An example is given: over ten years of not contributing 500 shekels monthly (60,000 shekels), at 4% annual interest, the capital could have been 73,600 shekels, and over 30 years, exceed 160,000 shekels. The Finance Ministry also points to the vulnerability of low-income workers, who more often withdraw funds upon dismissal. Alternatives are being considered: limited withdrawal of part of the savings for low-paid workers and using a portion of the funds for long-term care insurance, while maintaining mandatory pension insurance as a foundation.