Pension Fund Returns Outperform Fees, Potentially Adding Millions

A simulation by Discount Bank reveals that higher annual returns from a pension fund, even by a single percentage point, can result in millions more shekels by retirement compared to funds with lower returns, despite potentially higher management fees. The simulation contrasted two 35-year-old individuals with identical starting points: 400,000 shekels in their fund and a 4,100 shekel monthly contribution. One individual's fund yielded an average annual return of 6% with 0% management fees on accumulated savings, while the other's fund achieved a 7% annual return but charged 0.25% on accumulated savings. Both paid 1% in fees on monthly contributions. By age 67, the individual in the higher-returning fund was projected to have approximately 8.47 million shekels, versus 7.13 million shekels for the lower-returning fund, a difference of 1.34 million shekels. This difference could translate to an additional monthly pension of about 6,700 shekels.

Data from the Israel Securities Authority's "Pension Net" platform indicates that actual return disparities between pension fund managers can be even more significant than the simulation's hypothetical 1% difference. Over three years ending May 2026, the leading fund achieved a cumulative return of about 62.5%, while the lowest-performing fund returned approximately 51.4%. While top performers can change over time, these real-world gaps highlight the substantial impact of returns.

Experts emphasize that there is no direct correlation between higher management fees and higher returns. "There is no basis to say that a body that charges higher management fees will achieve a higher return," stated Erez Caro, head of financial advisory products at Discount Bank. He noted that savers often focus on management fees because they are easily visible and comparable, sometimes overlooking the critical factor of investment returns. Caro also pointed out that while savers cannot control returns, they can influence their outcome by choosing their pension fund, investment track, and periodically reviewing their decisions.

Analysis of Discount Bank's Smart Future platform data revealed other common issues among savers. 35% of clients discovered they were paying above-average management fees. Additionally, 18% expressed concerns about inadequate death benefit coverage, often due to unupdated beneficiary information after life events like marriage or childbirth. A significant 30% of clients found a gap between their desired retirement income and their projected pension, with women experiencing a particularly pronounced shortfall, averaging about 30% less than men. Furthermore, 4% of clients were found to have a mismatch between their age and their investment track's risk level, a critical issue that can lead to substantial financial gains for younger individuals or significant losses for older ones nearing retirement.