Mad Hon · Pension savings

Understand how the Israeli pension system works

Understand how the Israeli pension system works. A step-by-step Mad Hon guide for your Pension savings score, written for olim.

1. It is not a 401(k), an ISA, an RRSP or a workplace pension.
An Israeli comprehensive pension fund, keren pensia mekifa, is a savings balance and two insurance covers bought together. Alongside the accumulation it carries disability cover, if you become unable to work, and survivors cover for a spouse and children. Both are priced out of the same deposit, which is why two funds with the same headline fee can leave different amounts accumulating. At the end the balance is not handed over as a pot: it is converted into a monthly payment for life. That structure is the biggest single difference from whatever you left behind, and it is why "how much is in it" is only half of any sensible question about it.
2. It is compulsory, and the duty sits with the employer.
Since 2008 an expansion order has required every employer to insure every employee in a pension arrangement. It applies from age 21 for a man and 20 for a woman. Contributions start after six months of employment, and on the first day for someone arriving already insured under an existing Israeli arrangement, paid retroactively after three months of work or at the end of the tax year, whichever comes first. The combined minimum is 18.5 percent of insured salary: 6 from you, 6.5 from the employer and 6 towards severance. Self-employed people have their own separate obligation. Contributing above the minimum is allowed and attracts tax relief up to ceilings the Tax Authority updates, so check those before setting an amount rather than assuming a figure you read somewhere.
3. A small balance a few years in is the rules working, not you failing.
This is the step written for a recent oleh and it is worth reading before you look at any number. An employee with no earlier Israeli pension does not start accruing for six months. A balance that reflects two years of Israeli work reflects two years of Israeli work, and comparing it to what an Israeli of your age has is comparing it to twenty years of deposits you were not here for. Nothing on this page is asking you to make that up. What is worth getting right now, and expensive to fix in a decade, is a shorter list: that an account exists, that the deposits are actually arriving in it, that the fee you pay is one you chose, and that you know which fund it is.
4. Know the layers, and what each one is for.
The comprehensive pension fund is the compulsory core. A keren hishtalmut is a medium-term account tied to employment terms, where money left in place for six years comes out with its growth free of capital gains tax. A kupat gemel le'hashkaa is open to anyone, funded from money already taxed, with its own annual ceiling and a route to a tax-free annuity from age 60. Bituach menahalim, managers insurance, is a fourth shape, sold by insurance companies rather than pension funds, which some employment contracts still use and which prices its cover differently. Those are four instruments with four purposes; which combination fits depends on your terms, your income and what you already hold abroad.
5. Read the pension block on your payslip, then check where the money went.
The tlush maskoret carries a provident and pension section with three lines: your contribution, the employer contribution, and the severance component, pitzuyim. Add them and divide by the insured salary, which is not the same as gross pay because allowances such as a car, a phone or a meal card usually sit outside it. Then confirm the money arrived, which is a separate question: Har HaKesef, the money mountain, is a free Ministry of Finance service listing the savings products registered in your name, and it will show you which fund actually received the deposits. It is a different service from Har HaBituach, which is the Capital Market Authority register of insurance policies.
6. Find out whether you chose your fund or inherited it.
Where an employee files no choice, the employer enrols them into a default arrangement. Those defaults are selected by state tender on the fee they charge, so they are usually reasonable on price, and they are selected for a whole population rather than for your age, your balance or the track you want. The fee has two separate parts, one on the accumulated balance and one on each deposit, and both are negotiable. The investment track can be changed later at no cost. The Capital Market Authority publishes a comparison of every fund, which is the neutral place to look rather than an agent who is paid by one of them.
7. Ask early how your home country will treat it.
An Israeli pension fund is a foreign pension to the tax system you came from, and the treatment differs by country and by treaty. A US citizen files a return wherever they live, and the reporting questions start the moment an account exists rather than when money comes out of it. Leavers from Britain, Canada, Australia and South Africa each have their own version of the question. Ask an adviser who works both systems while the account is new and the paperwork is thin. This is a reporting question with real answers, not a reason to avoid the account.

Understand how the Israeli pension system works. A step-by-step Mad Hon guide for your Pension savings score, written for olim.

1. It is not a 401(k), an ISA, an RRSP or a workplace pension.

An Israeli comprehensive pension fund, keren pensia mekifa, is a savings balance and two insurance covers bought together. Alongside the accumulation it carries disability cover, if you become unable to work, and survivors cover for a spouse and children. Both are priced out of the same deposit, which is why two funds with the same headline fee can leave different amounts accumulating. At the end the balance is not handed over as a pot: it is converted into a monthly payment for life. That structure is the biggest single difference from whatever you left behind, and it is why "how much is in it" is only half of any sensible question about it.

2. It is compulsory, and the duty sits with the employer.

Since 2008 an expansion order has required every employer to insure every employee in a pension arrangement. It applies from age 21 for a man and 20 for a woman. Contributions start after six months of employment, and on the first day for someone arriving already insured under an existing Israeli arrangement, paid retroactively after three months of work or at the end of the tax year, whichever comes first. The combined minimum is 18.5 percent of insured salary: 6 from you, 6.5 from the employer and 6 towards severance. Self-employed people have their own separate obligation. Contributing above the minimum is allowed and attracts tax relief up to ceilings the Tax Authority updates, so check those before setting an amount rather than assuming a figure you read somewhere.

3. A small balance a few years in is the rules working, not you failing.

This is the step written for a recent oleh and it is worth reading before you look at any number. An employee with no earlier Israeli pension does not start accruing for six months. A balance that reflects two years of Israeli work reflects two years of Israeli work, and comparing it to what an Israeli of your age has is comparing it to twenty years of deposits you were not here for. Nothing on this page is asking you to make that up. What is worth getting right now, and expensive to fix in a decade, is a shorter list: that an account exists, that the deposits are actually arriving in it, that the fee you pay is one you chose, and that you know which fund it is.

4. Know the layers, and what each one is for.

The comprehensive pension fund is the compulsory core. A keren hishtalmut is a medium-term account tied to employment terms, where money left in place for six years comes out with its growth free of capital gains tax. A kupat gemel le'hashkaa is open to anyone, funded from money already taxed, with its own annual ceiling and a route to a tax-free annuity from age 60. Bituach menahalim, managers insurance, is a fourth shape, sold by insurance companies rather than pension funds, which some employment contracts still use and which prices its cover differently. Those are four instruments with four purposes; which combination fits depends on your terms, your income and what you already hold abroad.

5. Read the pension block on your payslip, then check where the money went.

The tlush maskoret carries a provident and pension section with three lines: your contribution, the employer contribution, and the severance component, pitzuyim. Add them and divide by the insured salary, which is not the same as gross pay because allowances such as a car, a phone or a meal card usually sit outside it. Then confirm the money arrived, which is a separate question: Har HaKesef, the money mountain, is a free Ministry of Finance service listing the savings products registered in your name, and it will show you which fund actually received the deposits. It is a different service from Har HaBituach, which is the Capital Market Authority register of insurance policies.

6. Find out whether you chose your fund or inherited it.

Where an employee files no choice, the employer enrols them into a default arrangement. Those defaults are selected by state tender on the fee they charge, so they are usually reasonable on price, and they are selected for a whole population rather than for your age, your balance or the track you want. The fee has two separate parts, one on the accumulated balance and one on each deposit, and both are negotiable. The investment track can be changed later at no cost. The Capital Market Authority publishes a comparison of every fund, which is the neutral place to look rather than an agent who is paid by one of them.

7. Ask early how your home country will treat it.

An Israeli pension fund is a foreign pension to the tax system you came from, and the treatment differs by country and by treaty. A US citizen files a return wherever they live, and the reporting questions start the moment an account exists rather than when money comes out of it. Leavers from Britain, Canada, Australia and South Africa each have their own version of the question. Ask an adviser who works both systems while the account is new and the paperwork is thin. This is a reporting question with real answers, not a reason to avoid the account.