National Economic Council Proposes Halting Employee Pension Contributions Until Age 40

Israel's National Economic Council, part of the Prime Minister's Office, has proposed eliminating the mandatory employee contribution to pension funds until the age of 40. Under this proposal, employers would continue their full contributions, but employees would only be required to contribute starting at age 40. This suggestion stems from research by Prof. Avi Simhon and Avraham Zupnik of the Council, which analyzed average income development throughout a person's life cycle. The study, using data from the Central Bureau of Statistics and actuarial simulations, found that expected retirement pensions often exceed net monthly income during most working years, a situation termed an 'actuarial deficit.' This is particularly pronounced in lower income brackets where state old-age pensions form a larger part of the retirement income. The researchers argue that while the current system ensures high security in old age, it compromises the well-being of employees in their early working years when expenses like family formation, child-rearing, and mortgages are highest. They believe removing employee contributions until age 40 would improve living standards during these years while maintaining an adequate replacement ratio (pension to pre-retirement salary). Employees would have the option to continue contributing voluntarily before 40. This proposal comes despite a recent State Comptroller report highlighting the National Insurance Institute's unpreparedness for an aging population and ongoing efforts to gradually raise the retirement age for women to 65 and link men's retirement age to life expectancy to address actuarial deficits. The Histadrut labor union strongly criticized the proposal, calling it "absurd" and a "false representation" that would significantly harm workers' long-term security. They emphasized that any change to the mandatory pension contribution system requires amending the collective agreement and expansion order, and that labor parties should have been consulted.