Leaving Israel: Understanding Your Pension and Savings After Emigration

When Israelis leave the country, their pension and savings accounts undergo significant changes, impacting insurance coverage, management fees, and future benefits. Upon the last salary payment, pension fund insurance coverage for death and disability automatically continues for five months, known as a "temporary risk arrangement." This coverage can be extended by paying from the accumulated balance for up to 24 months, but not exceeding the prior period of continuous insurance. For "insurance managers" policies, this automatic coverage is shorter, typically three months, with extensions dependent on policy terms. After this period, if no new contributions are made, coverage ceases and insurance seniority resets, potentially leading to new waiting periods and higher costs upon return.

Management fees continue to be charged on dormant accounts, often reverting to the maximum legal rates if employer or collective agreement discounts expire. For example, a 0.5% annual fee on a 300,000 shekel balance can amount to 900 shekels more per year compared to a previously negotiated lower rate, accumulating to tens of thousands of shekels over a decade abroad, including lost investment returns. Contacting the managing entity before departure or comparing fees through the pension clearinghouse can help maintain lower rates or transfer funds to cheaper providers.

Withdrawal of severance pay upon leaving Israel offers immediate liquidity but has long-term financial consequences. Each 100,000 shekels withdrawn reduces the future tax-exempt pension annuity by 135,000 shekels due to a multiplier of 1.35. More significantly, withdrawing severance pay can cut monthly pension payments by approximately 40%. Withdrawing pension "rewards" before age 60 incurs a minimum 35% tax, even with low annual income.

In contrast, study funds (Keren Hishtalmut) continue to grow and accrue seniority even after contributions stop. These funds become accessible after six years for general purposes, or three years for educational needs or retirement, with profits being tax-exempt. While continuing to contribute from abroad as an independent contractor is possible, the lack of Israeli income negates the tax benefits, leading most to leave the funds invested. Early withdrawal before liquidity is subject to income tax rates up to 47%, making it more costly than leaving the funds invested, especially if the withdrawal occurs during a high-income tax year in Israel.

Managing these accounts from abroad can be complex, particularly regarding tax deductions for non-residents, which require declarations and documentation. Maintaining an active Israeli address and bank account is crucial for receiving annual statements and avoiding accounts being declared disconnected, which can lead to funds being lost on the "Mount of Money" registry. Simple steps like updating contact information and ensuring online access can prevent these issues.