PMO proposal to increase your net salary – at the expense of your pension

The National Economic Council in the Prime Minister's Office proposes a dramatic reform to mandatory pension: canceling the employee's mandatory pension contribution until age 40, while maintaining employer contributions. The immediate implication is an addition of hundreds of shekels to the net monthly salary for young workers. The proposal, which may raise questions due to its timing close to elections, is based on research arguing that money is more needed at age 30 than at 70, and that the expected pension is sufficient anyway.

The National Economic Council in the Prime Minister's Office has published a proposal for a significant reform to mandatory pension in Israel. According to the proposal, employees up to age 40 will no longer be required to contribute their share to pension savings, while employer contributions will continue in full. The immediate implication for young workers is an addition of hundreds of shekels to net monthly salary. The proposal comes at a sensitive time, ahead of elections, raising questions about its timing. Behind the proposal is a study conducted by Prof. Avi Simhon and Avraham Zofnik, examining income development over a lifetime. The researchers argue that the heaviest expenses – starting a family, purchasing a home, and a mortgage – are concentrated precisely in the early working years, while salaries are still relatively low. According to them, the expected pension for many workers at retirement age is high relative to the net income they received during their lives, especially among low-wage earners due to the weight of the old-age pension. The proposal is currently only a default option, and workers who wish to continue contributing will be able to do so. It poses an economic question: whether to force a young person to save for another four decades, or to leave them more money in their pocket today.