New Rules Require Direct Consent for Pension Fund Withdrawals
Translated & summarized from NEWSru Israel by baba
New regulations in Israel require pension funds and insurance companies to obtain direct consent from account holders before processing early withdrawals, effective October 12. The enhanced procedures aim to prevent exploitation by intermediaries charging high fees for forgotten savings. Account holders will be notified of tax implications, reduced future pensions, and insurance impacts before final confirmation. These changes are intended to protect individuals from losing significant portions of their savings and insurance benefits.
The story in 5 lines · by baba
- Pension funds must now get direct consent from account holders before processing early withdrawals.
- New rules, effective October 12, aim to prevent exploitation by intermediaries charging high fees.
- Account holders will be notified of tax implications and reduced future pension payments.
- Early withdrawals can lead to losing over half of savings due to taxes and intermediary fees.
- Full withdrawals also terminate disability and survivor insurance coverage.
As of Monday, October 12, new regulations from the Capital Markets Authority have come into effect, governing the early withdrawal of funds from pension funds, provident funds, and insurance policies with a pension component. Pension funds, insurance companies, and investment firms are now mandated to pause withdrawal requests, verify them, and obtain explicit consent from the account holder before processing any debits. The managing entity must confirm that the request originates directly from the account holder, not an intermediary. They are also required to cross-reference employment termination data with employer reporting systems, verify tax exemption certificates with the tax authorities, and check inheritance certificates against the inheritance registry. Depending on the withdrawal amount, account holders will be notified via phone or digital channels. This notification must detail the maximum tax amount, the projected reduction in future pension payments, the impact on fund-related insurance coverage, and provide contact information for a licensed consultant. A withdrawal request is considered complete only after all checks are finalized and the account holder reconfirms their intention. These stricter procedures for early withdrawals are a response to the proliferation of companies and intermediaries that solicit clients by promising to locate "lost money," which often refers to forgotten pension savings. These services typically conclude with a recommendation to withdraw funds, charging commissions of up to 20% of the amount. Similar information is available for free on the Ministry of Finance's "Ar HaKesef" website, and withdrawal requests can be submitted directly to the fund. Early withdrawals without tax entitlement can incur taxes up to 35%, and when combined with intermediary fees, account holders could lose over half of their accumulated savings. Furthermore, a full withdrawal closes the pension fund account, terminating disability and survivor insurance coverage. Re-establishing contributions may involve a new waiting period and exclusion of pre-existing conditions from insurance coverage.
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