Israeli Economic Council Proposes Ending Mandatory Pension Contributions for Under-40s

Professor Avi Simhon, chairman of the National Economic Council and an advisor to the Prime Minister, has proposed eliminating the mandatory pension contribution requirement for employees under the age of 40. The proposal, co-authored by council researcher Avraham Zupnik, suggests that individuals under 40 would not have pension contributions deducted from their salaries by default, though they could opt-in. Employers would continue to contribute as usual.

This change is projected to increase the net monthly income for these workers by approximately 500 shekels. However, it is also estimated to reduce their monthly pension payout in retirement by about 2,000 shekels. Critics argue that this move would significantly harm long-term retirement savings, particularly because it foregoes the years when savings typically yield the highest returns due to compounding interest.

The proposal contrasts with recent initiatives from the Ministry of Finance and the Capital Markets Authority, which have focused on reducing tax benefits for pension savers rather than eliminating contributions altogether. Simhon and Zupnik acknowledge that their proposal relies on an optimistic scenario of continuous employment without withdrawals, a situation they admit is unrealistic given recent economic disruptions like the COVID-19 pandemic and extended reserve duty periods.

The Ministry of Finance stated that a professional team is thoroughly examining the issue and has not yet finalized a position, but will consider Simhon's recommendations.