Retiring in Israel as an Oleh: How Is My Foreign Pension and Social Security Taxed?

For your first ten years as an oleh, Israel taxes none of your foreign pension or foreign state pension — the 10-year new-immigrant exemption covers them fully.¹ When that window closes, section 9c of the Income Tax Ordinance caps the Israeli tax at no more than you would have paid in the country that pays the pension.³The one country that never lets go is the United States: its citizens keep filing and paying US tax on those same pensions throughout. That split — Israel stepping back for a decade while the US keeps taxing — is the whole story for a retiring oleh.

Almost every retiree making aliyah is blindsided by the same thing: they assume retiring to Israel means moving their tax home to Israel, full stop. It does — for an Israeli, or for a British, Canadian, or South African oleh who becomes non-resident back home. It does notfor an American, because the US taxes by citizenship, not residence. A lifelong Israeli reading this has one tax system to think about. You have two, and the order in which they apply — and the ten-year breathing space Israel grants on one side — is what this guide is about.

How does Israel tax my foreign pension during the first ten years?

It does not tax it at all. From your date of aliyah, you receive a 10-year exemption from Israeli income tax on all foreign-source income — and that explicitly includes pensions, annuities, interest, dividends, and rent from property abroad.¹A company pension from your old employer, a US, UK, Canadian, or South African state pension, an IRA/401(k) draw, an annuity: for ten years Israel asks for none of it. Express the timing from your aliyah date, not the calendar — the clock starts the day you land as an oleh and runs for a decade, so a pension that starts in, say, year 6 still enjoys four more years of full Israeli exemption.

The catch arrived in 2026. Until then the exemption was a double exemption: exempt from tax and exempt from reporting, so olim filed nothing about their foreign pensions.² From 1 January 2026 the income stays tax-exempt but the reporting exemption is gone: you must now disclose the foreign pension and other foreign income on your Israeli annual return even though no Israeli tax is due on it.¹Treat it as report-but-don’t-pay. The exemption you came for is intact; the paperwork is not.

What happens to the tax on my foreign pension after year ten?

After the 10-year window, your foreign pension becomes taxable in Israel — but a no-worse-than-home cap protects you. Under section 9c of the Income Tax Ordinance, a retiree who became an Israeli resident is taxed on a foreign pension at no more than the tax that would have applied to that pension in the source country had they stayed there.³ The logic is deliberate: moving to Israel should not make your old-age pension cost you more tax than it would have at home. As an alternative, section 9b grants a flat 35% exemption on a foreign pension — you are taxed at ordinary Israeli rates on only 65% of it — which can beat the 9c cap for some profiles.³

Note carefully which section is which, because the numbering trips people up. The foreign pension relief is sections 9b and 9c; section 9(5) of the same Ordinance is a completely different exemption for blind and severely disabled individuals and has nothing to do with pensions.³ The practical move is to model both routes (the 9c cap and the 9b 35% exemption) before year ten arrives, because the better one depends on your pension size, your other Israeli income, and the source-country rate.

Why does the US keep taxing my pension when Israel does not?

Because the United States taxes its citizens on worldwide income regardless of where they live, and the US–Israel tax treaty preserves that right through its “saving clause.” The treaty lets the US tax its own citizens as if the treaty did not exist, so an American oleh keeps filing a US return and keeps paying US tax on a US pension, IRA, or 401(k) draw for life.⁴Israel’s 10-year exemption changes nothing on the US side — it only stops the Israelitax. For a decade an American retiree typically owes US tax and zero Israeli tax on the same pension; the exemption removes double taxation by emptying Israel’s claim, not America’s.

Social security is the cleaner corner of the treaty. Article 21 (Social Security Payments) is an exception to the saving clause: a government social-security benefit is taxed by the country that pays it.⁴ So US Social Security is a US tax matter, not an Israeli one, and your Israeli קצבת זקנה (Kitzvat Zikna) (Bituach Leumi old-age pension) is an Israeli matter. The treaty’s job is to make sure each benefit is taxed once, by the right country — not twice.

Does my home-country state pension still reach me in Israel?

Yes — every major source country pays its state pension into Israel, but the rules diverge sharply by passport. US Social Security is paid to Israel by international direct deposit and is taxed by the US under the treaty.⁴ The UK State Pension is paid to Israel and, importantly, is uprated every year: Israel sits on the UK list of countries where the annual State Pension increase is paid, so — unlike Australia, Canada, or New Zealand, where the pension is frozen at the rate it was first paid abroad — a British oleh keeps getting the yearly rise.⁶ This is a genuine, often-missed advantage of retiring to Israel specifically rather than to a frozen-rate country.

Canadasplits in two. The Canada Pension Plan (CPP) has no residence requirement abroad — you earned it through contributions, so it follows you to Israel. Old Age Security (OAS) is stricter: to keep receiving it outside Canada you generally need at least 20 years of Canadian residence after age 18.⁷ Both are normally subject to Canadian non-resident withholding tax of 25%, which the Canada–Israel tax treaty can reduce.⁸ South Africa has no contributory state pension to export, so SA retirees rely on private retirement annuities and the Israeli system.

Should I draw down my retirement accounts inside the 10-year window?

For non-US olim, the 10-year window is often the cheapest decade you will ever have to pull money out of foreign retirement accounts, because Israel taxes none of it.¹A British, Canadian, or South African oleh who has become non-resident at home and is inside the Israeli exemption can frequently draw down a foreign pension pot or annuity with little or no tax in either country — a window that slams shut at year eleven, when Israeli tax switches on and the 9c cap or 9b exemption takes over.³ Front-loading withdrawals into the exempt years, where home-country rules allow, can be markedly more efficient than spreading them evenly across retirement.

For a US-citizen oleh the calculus inverts. The US taxes the draw regardless of the Israeli exemption, so timing withdrawals to land inside the Israeli window saves no US tax — the US bite is the same in year 3 or year 13. What a US retiree optimises instead is the US-side picture: Roth conversions, the order of taxable-versus-tax-deferred accounts, and the foreign tax credit. And a US oleh must address PFIC before holding any non-US pooled fund — which is the subject of the next callout.

For your first ten years as an oleh, Israel taxes none of your foreign pension or foreign state pension. From 1 January 2026 that income stays Israeli-tax-free during the window but must be reported on your Israeli annual return. After year ten, section 9c of the Income Tax Ordinance caps the Israeli tax so it is never more than you would have paid in the country that pays the pension, while section 9b offers an alternative flat 35% exemption. The US is the outlier: citizenship-based taxation and the treaty saving clause mean an American oleh keeps filing and paying US tax on US pensions for life, with US Social Security taxed only by the US under Article 21.