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

Israel's National Economic Council, advising Prime Minister Benjamin Netanyahu, has proposed a significant reform to the country's mandatory pension system. The plan, approved by council members on September 14, suggests eliminating pension contributions for employees under the age of 40, while maintaining employer contributions. This change is projected to increase the net income of affected workers by 6%.

The proposal has drawn criticism from economic circles, with opponents pointing out its timing just 1.5 months before elections, making implementation before a new government is formed unlikely. Concerns have also been raised about the stability of the long-term savings system.

Under the proposed reform, individuals under 40 would still have full pension coverage, funded solely by their employers. The proposal is based on research by Council head Prof. Avi Simhon and council member Avraham Zupnik, utilizing data from the Central Bureau of Statistics. Mandatory pension insurance was introduced in Israel in 2008, with contributions set at a uniform rate for both employees and employers, regardless of individual factors.

Research indicates that most Israelis who worked until retirement age receive pensions equivalent to or exceeding their previous salaries, particularly lower-income workers. The council argues that the current system benefits older workers at the expense of younger ones, who face significant expenses like starting a family and buying a home while earning less. The reform aims to improve the living standards of those under 40, while allowing them the option to contribute voluntarily.

Critics, however, fear that most young workers will opt out of voluntary contributions, jeopardizing their future retirement security. This proposal follows another initiative by Prof. Simhon aimed at easing the burden of mortgage payments for young families, which was previously shelved.