The Right of Retirement Pension for Every Worker

The year of 2008 marked the beginning of a new time for Israeli workers. From 2010 the total contribution from both parties (employer and employee) must be at least 10% (up from 5% in 2008 and 7.5% in 2009).

From then according to a new law every worker, after 6 months of work, must receive Pension Insurance. It could have been “as a dream come true”, but the truth is that the reality is very different from its intentions. More than two years after the law was implemented, it is not being fully applied as it should.

The reason is that many employees and employers are not aware of the duties and rights contained in the text of the law. Although this law has the potential to solve the pension problem in Israel, it doesn’t work fully in practice.

So, who or what is responsible for it?

The Employees

Many young people who have joined the labor market recently don`t realize how important Pension Insurance is. They don’t have the foresight to understand that someday their energy will be reduced and they won`t be able to work as they do now, or maybe it won`t take as many years as they imagine, or even that they might (God forbid) suffer an accident that could render them to be unable to work at all.

They want all the money, right now, and the more, the better. Waiting a period of 20 to 40 years to save money for retirement seems too long when they have full energy.

This is a cultural issue requiring education and informational activities promoted by the government. What is being done to improve the situation, is too little to mend the situation.

The Employers

Applying the law appropriately incurs a higher salary expense for the employers, which is of course, is the opposite of their wishes. That`s why they try every possible way to avoid new expenses, including Pension Insurance.

What are the types of Pension Insurance and how much do they cost?

The new law does not force the creation of a new plan, since conditions of plans already in place can be better for the employee than the ones contained in the mandatory Pension Insurance law; therefore you keep your old plan from your previous work and continue to pay for it through your new employer.

The monthly payments must guarantee to the employee a "full pension", not only for retirement based on age, but also for the case of accidents. Unless the employee asks for something else, that`s the standard.

For the employee, it`s advisable to consult with an expert in the field.

What should an employee be aware of?

The mandatory pension is, as the name indicates, mandatory, which means an employee cannot wave his right for the pension fund. Even if the employee himself agrees with the employer to receive a higher salary instead of putting the money that is supposed to be set aside for Pension Insurance. This “mutual agreement” is not possibly legal and the sides are not allowed to do it.

What should an employer be aware of?

The employer who agrees with an employee’s request to pay him the money that is supposed to be set aside for Pension Insurance is breaking the law, and will be liable for penalties. Later claiming that his employee requested it is irrelevant, his personal responsibility won’t disappear, and he can be sued for damages caused to the employee in case of accidents, if necessary, for the rest of the victim`s life.

Even if the employee leaves the job and goes to work somewhere else, that employer will still be responsible, if there are no Pension Insurance funds. Of course, there is a (long) period of prescription – 7 years.

The Amounts

The value of the mandatory Pension Insurance is mandatory to a salary up to 7.700 shekels only. Any wage beyond this value is exempt from pension funds deductions but should be added to the plan as well, which is something advisable, despite the extra expenses.

Is it necessary to make a new Pension Insurance? What about the existing plans and their replacement for new ones?

There is a very serious problem in the insurance industry, mainly about the Pension Insurances. It happens more and more something called "substitution of policies" in which insurance agents offer the employer or employee a new policy, which according to them is better and more advantageous. You must be very careful with these proposals, because they are often not better but they seem to be at first sight. Replacement of policies many times brings damage to the worker, at least on short term periods.

So, what can you do to avoid these damages?

You should analyze carefully the proposal, make a preliminary examination of your health to see if the new insurer will accept the terms agreed in the contract, or if the new conditions are really better than the old ones (that is not so easy, but could happen).

Conclusion

Although the amount for the Pension Insurance affects the monthly salary, that`s the best way to guarantee that the worker will be able to live properly, when he gets to the retirement age or in case of accidents.

 
Sincerely,

 
Tzvi Szajnbrum, Attorney at Law