30 Billion Shekels of Pension Funds Targeted Amidst Government Concerns
Translated & summarized from Maariv by baba
Israel boasts the second-highest global pension fund returns, averaging 5.58% annually. Concerns have surfaced regarding a potential government move on approximately 30 billion shekels in surplus pension funds generated by a 2022 reform. The reform replaced costly government bonds with a market investment guarantee, with surpluses intended for future yield shortfalls. While the Treasury denies any intent to seize these funds, investment houses fear budgetary diversion, and a minor impact on the stock market is also anticipated.
The story in 6 lines · by baba
- Israel ranks second globally in pension fund returns with a 5.58% average annual real yield.
- Approximately 30 billion shekels in surplus pension funds are reportedly a target for potential government use.
- A 2022 reform shifted pension investments from costly government bonds to market investments.
- Surplus funds are designated for future yield guarantees, with the first accounting in October 2027.
- Investment houses fear the government may divert these surpluses for budgetary needs.
- A potential, though likely minor, negative impact on the Tel Aviv Stock Exchange is also noted.
Israel ranks second globally in pension fund returns, with an average annual real yield of 5.58% over the past decade, according to a new OECD report. However, a recent report in "Calcalist" has raised concerns that the government may attempt to access approximately 30 billion shekels in surplus pension funds.
These funds stem from a reform implemented in October 2022, which replaced a previous system where pension funds transferred 30% of their assets to the state in exchange for special government-backed bonds yielding a guaranteed real return of 5-6%. This old system proved costly for the Treasury, which paid significantly higher interest than it would have on the open market, amounting to an estimated 9 billion shekels more in 2021 alone.
The new mechanism requires pension funds to invest in the capital market, with the state guaranteeing a real annual return of 5.15%. Any surplus generated above this rate is to be transferred to a special fund to cover shortfalls in less successful years. The first accounting for this surplus is due in October 2027, after a five-year investment period.
Investment houses are reportedly worried that the government might divert the estimated 30 billion shekels in surpluses for budgetary needs instead of reserving them for future yield guarantees. The Treasury has denied any intention to change the funds' designation. However, the article suggests that the mere awareness of this large sum among Knesset members could lead to pressure.
Furthermore, the article notes a potential, albeit minor, negative impact on the Tel Aviv Stock Exchange. The transfer of these surplus funds from pension funds, which are invested in the capital market, to a locked account at the Bank of Israel could reduce demand for stocks. While the article downplays this risk, estimating an average monthly withdrawal of only about 125 million shekels, it acknowledges that this could exert some downward pressure on the market. The author argues that the reform ultimately benefits the capital market by freeing up hundreds of billions of shekels previously locked in government bonds and reducing the tax burden on citizens.
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