She is very mysterious. We know it exists, but we don’t know anything about it. Our pension. Sometimes we realize that upon retirement we will receive small sums, but we do not know what to do with this disturbing information.
It’s time to dispel the cloud of mystery and not be afraid to talk about everything that retirement entails. The more you know, the less you will be afraid. Promise. Here is a quick guide to retirement. In it, we will explain very briefly what rights you are entitled to by law and explain what you need to know and do today, so that tomorrow will be safer and more enjoyable.
Checking the pension status
- What will you have in retirement? You need to know your current financial situation and the amount that is expected to be available to you after retirement age, what is theamountof the monthly allowance. To do this, use the annual reports you received from the entities managing your pension plans. If you can’t find the report, you can get the information through the customer relations department of pension funds and insurance companies or your insurance agent.
- Don’t know what you have? Through the Pension Clearing House , every citizen of the State of Israel can receive a full and up-to-date picture of the pension savings accrued to his credit, both active and inactive. Through the Pension Clearing House, it is possible to submit a request for full pension information. The request will be sent simultaneously to all existing entities in the State of Israel, insurance companies, provident funds and pension funds, which will be obligated to provide a response within 3 business days. The cost of the service is about 40 ₪.
- Think you might have lost savings? Use the Ministry of Finance websiteto check if you have pension plans, insurance policies, provident funds or study funds that you were not aware of or forgot.
Types of pension
- Budget pension: This pair of words is the best thing that can happen to you after retirement. If you work in the civil service, the Israel Police, prisons, security services, local authorities, etc., and you have a pension plan from many years ago (usually from before 1995), you probably have a budget pension. If so, then you have won both good conditions and a simple check of the amount of the expected monthly allowance. The expected allowance is 2% of the average salary of the past few months, multiplied by the number of years you have been insured under the plan. As a rule, the accumulation of rights is limited by a ceiling of about 70% of the salary (after 35 years of work).
- Accruing pension: If you don’t have a budget pension, you’re in an accruing pension plan. In other words, pension amounts are set aside from your salary (in addition to employer contributions), and the pension that will be available to you at retirement age depends on the amount you have accumulated. To check the amount of the expected monthly allowance in such plans, look in the annual reports for the section called “Concentration of Insurance Coverage” (or “Concentration of Rights”), and there find the amount of “Estimation of expectedold-agepensionbased onaccrued balance” (or “Expected Annuity”). This amount is based only on the amounts accumulated up to the day of the inspection and assuming that no more funds will be set aside. Presumably, the amount of the expected monthly allowance you found will be low compared to your monthly salary during your working years, but you want it to be large enough to allow for a standard of living that suits you. If the amount of the allowance is insufficient, examine options for improving it through additional savings, alternative programs, and improving conditions in the current plans.
- The employer is obligated by law to set aside pension money for you six months after starting work. This is true for a man from the age of 21 and a woman from the age of 20.
- If you already have an active pension plan or executive insurance, report this to your employer and they will be obligated to contribute to your pension retroactively after three months from the start of employment or at the end of the tax year.
- As of November 2016, any employee who wishes to do so will be able to join one of two default pension funds chosen by the Ministry of Finance. In default pension funds, management fees are particularly low.
- Dash Meitav – management fee at a rate of 1.31% of monthly deposits and a rate of 0.01% of the accrual in the fund.
- Helman Aldubi – management fees at a rate of 1.49% of monthly deposits and a rate of 0.001% of the accrual in the fund.
- As of January 2016, new members of pension funds (as well as managers’ insurance and provident funds) will be assigned to an age-appropriate investment track unless they choose otherwise.
How much does it cost us? Deposit rate and management fee
- As of January 2017, the rate of contributions in pension savings will increase. Employer contributions will be 6.5% (increased from 6.25%) and employee contributions will be 6% (increased from 5.75%).
- Another change that came into effect on January 1, 2014 is limiting the maximum management fees in provident funds to 1.05% per annum of accumulated savings (until the end of 2013 the maximum was 1.1%).
And you chose the good life: choosing pension products
Know that there are different pension products (pension fund, provident fund or managers’ insurance) that can be made at different companies and in different channels according to the investment policy and risk level (for example: a share channel, a shekel channel, or bonds). You have the right to choose the product, the company and the channel for your pension plan, and to change them at any time as you wish.
The guiding rule regarding the investment channel should be as follows: the younger you are, the more you can increase the share component of your portfolio, and the closer you get to retirement – the more solid the investment channel should be.
Once in a while, we examined the average profits (return) in the various funds and funds and in the various tracks in them. The conclusions of the comparison will be an important consideration in deciding whether to change the route in your pension plan and, if so, what track you want:
- Look at average returns over a long period of time. At least a year and preferably even more.
- You don’t have to jump from plan to plan every time to be at the top of the yield table. It is enough to strive for programs that are in the top third of the table.
Pension plans usually also include insurance in case of death or disability. The cost of purchasing these insurances is taken from the amounts you contribute to the pension plan, and you actually have less money left to save. If your pension plan includes insurance, you pay monthly sums of money (“premium”), thereby buying the right to receive compensation in the event for which the insurance is intended. If, God forbid, such a case happens, you may receive compensation much higher than the amounts you deposited, and if the insurance case does not happen, you will receive nothing. Unlike the savings component of the pension plan, insurance exists as long as you pay for it. Once you stop insurance, you won’t see a dime from all the premiums you’ve paid.
You can choose the insurance plan in your plan. In other words, you can choose what weight to give to each of the components of the plan: savings, insurance in case of death and insurance in case of disability. The default is a “fundamental” track in which the disability pension and survivors’ pension will be equal to the old-age pension. But there are also other tracks that give extra weight to savings, to both insurances or only to one of them (life or disability).
For example, singles usually do not have to pay for death insurance because they do not have a spouse and children who need it, so they must choose the route without insurance in case of death. If they fail to do so, they will automatically be selected as the default and will simply pay for insurance in case of death.
The governing body of your pension plan charges you a management fee for this. There are two components to the management fee. First, management feesfrom deposits. These funds are calculated as a percentage of the monthly deposit. The second component is managementfeesfrom the accrual. These funds are calculated as a percentage of the total amount accumulated in your pension plan.
The maximum rate of management fees in a provident fund is up to 4% of deposits and up to 1.05% per annum on accumulated savings. Management fees in a pension fund are up to 6% of deposits and up to 0.5% of accumulated savings.
In the pension market, as in the flea market, it is possible and necessary to bargain
These rates are the maximum management fees, while in practice in many cases they pay less. Check the amount of management fees you pay and know that you can and should bargain for it. Worth trying. Calculated over years — that’s a lot of money!
As the number of years you save in the pension plan increases, the management fee component from the accrual becomes more significant and therefore it is worth focusing on when negotiating the amount of management fees.
Tools for comparison
To compare the profits and average management fees of the various provident funds. You can use the Ministry of Finance’s Provident system or the Provident Netsystem, which relies on the same database as the Ministry of Finance, but is more user-friendly. You can do a similar thing in the PensionNet system, in order to compare pension funds.
Keep your finger on the pulse
- It is highly recommended to update your personal status when changes occur. This has implications for the insurance component, which is an integral part of pensions, and it also has implications for savings.
- You can see in your annual pension savings report whether the management fees you pay are higher than the other savers in your savings.
If I don’t have who I am, personal responsibility
- Remember that compensation money is about 35% of your pension funds. You’ll probably need to use them after retirement, so don’t waste them first.
- Self-employed Please note: you are responsible for your pension. Take care of your pension savings, no one will do it for you!
- Pension savings are your future. This is big, vital money. Don’t neglect taking care of it and do everything you can to do right today to make your tomorrow safer.
Every end is a new beginning
You have reached the end of the initial abbreviated guide to retirement. As you already understood, this is an important and complex issue. It’s time to start delving into it and taking care of yourself and your future. It is imperative to examine each case individually, do not act according to this article without consulting a professional, and in generalit ishighly recommended to consultwitha pensionconsultantspecializing in thefield, beforemakingdecisions.
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