Israeli Regulator Mandates Warning Calls to Curb Early Pension Withdrawals

The Israeli Capital Market Authority has issued new regulations aimed at reducing the alarming rise in early withdrawals from pension savings. The directive imposes stricter obligations on institutional bodies before approving any withdrawal requests, intending to protect savers' financial futures. This move responds to a growing trend where licensed and unlicensed agents persuade savers to withdraw pension funds prematurely, often charging excessive fees and failing to disclose the severe consequences.

Under the new rules, effective within three months, institutional bodies must no longer approve withdrawals automatically. Instead, they must actively safeguard savers by conducting a mandatory telephone warning call with a human representative before processing any withdrawal. During this call, the representative must transparently disclose the withdrawal amount, explain the potential 35% maximum tax liability, and detail the expected damage to insurance coverage and future pension benefits. The representative must clarify that the call is not pension advice or marketing and provide contact details of the saver’s licensed insurance agent if applicable. Savers will also be informed they can withdraw funds directly from the institution at no cost, countering third parties who charge high fees for free services.

For withdrawal requests of 50,000 shekels or less, institutions may send a detailed digital notice instead of a phone call, balancing operational resources with saver protection. Withdrawals will only proceed after explicit positive confirmation from the saver; otherwise, the request will be automatically canceled, with the institution notifying the saver. All communications and approvals must be documented and retained for at least seven years to enable regulatory oversight.

The final directive shortens the implementation period from six to three months compared to the draft published last November, reflecting the regulator’s urgency. It also shifts responsibility from mandatory full pension advice by agents to direct operational accountability by the institutional bodies themselves. The 50,000 shekel threshold for digital versus human contact is a new addition not present in earlier drafts.