Expert Warns Against Halting Pension Contributions Before Age 40

Professor Avia Spivak, a leading Israeli pension researcher and former Deputy Governor of the Bank of Israel, has voiced strong opposition to a proposal by Professor Avi Simhon to halt employee pension contributions until age 40. Simhon's proposal aims to alleviate the cost of living, but Spivak argues that early contributions are crucial for long-term savings accumulation and that waiving them would disproportionately harm lower-income individuals.

Spivak emphasizes that the initial years of saving, particularly between ages 25 and 40, are vital for compound interest to significantly grow retirement funds. He points out that current pension coverage is inadequate for the lowest income quintiles, with many individuals not contributing to their pensions despite it being mandatory, often due to a lack of enforcement.

Instead of reducing savings, Spivak suggests the government should fund the employee's portion for low-income earners, possibly through mechanisms like negative income tax. He criticizes the current tax benefits for pensions as regressive, favoring higher earners, and proposes making these benefits accessible to lower-income brackets. Spivak also highlights that many pension models are based on unrealistic assumptions of continuous employment and contributions, failing to account for the reality of high job turnover and early withdrawal of funds.

He likens Simhon's proposal to a misguided attempt to address cost-of-living issues, arguing that such problems should be tackled with direct economic tools rather than by destabilizing the pension system. Spivak draws a parallel to Chile's experience during the COVID-19 crisis, where similar measures led to people withdrawing their savings, but notes that Israelis generally trust the pension system. He advocates for strengthening enforcement of mandatory contributions and ensuring the system's stability, which he sees as a key government responsibility, especially given the current geopolitical instability.

Spivak concludes by stating that a stable pension system is essential for retaining quality human capital in Israel, as it contributes to the overall well-being and attractiveness of living in the country. He also touches upon the stability of the National Insurance system, assuring it is secure for at least the next 20 years and requires careful management rather than drastic changes.