Netanyahu's Economic Council Proposes Halting Pension Contributions Until Age 40

Less than two months before elections, Israel's National Economic Council has unveiled a radical proposal to reform mandatory pension savings. The plan suggests eliminating employee pension contributions until age 40, a move intended to increase the net income of young workers by 6%. Economic experts have criticized the proposal, arguing it encourages a detrimental impact on long-term savings and is particularly ill-timed, as election regulations prevent the government and Knesset from discussing or approving such legislation.

The proposal, released by the Council under Professor Avi Simhon, would maintain employer contributions while suspending employee deductions until age 40. Workers would remain insured, but contributions would resume in full from that age onward. This reform is based on research by Simhon and Avraham Zupnik, which analyzed income trajectories throughout a worker's life, utilizing Central Bureau of Statistics data and actuarial simulations.

The research suggests that current pension contributions result in a future retirement income that often equals or exceeds a worker's pre-retirement net salary, especially for lower income brackets. However, this comes at the cost of reduced disposable income during early working years, which are typically burdened by significant expenses like starting a family, raising children, and mortgage payments.

The Council argues that suspending employee contributions until age 40 would improve living standards for young workers without significantly compromising their eventual retirement income, proposing it as a default option with the ability for individuals to opt-in earlier. Nevertheless, experts caution that many young people might prioritize immediate financial relief over long-term retirement security, potentially leading to significant economic consequences for future generations.

This initiative follows a previous proposal by Professor Simhon aimed at assisting young couples with rising mortgage payments due to high interest rates. That plan faced strong opposition from the Bank of Israel and other senior economic figures and was ultimately withdrawn before a government vote.