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Retirement in Israel for the self-employed - Mourché / Patour
Since January 2017, the law has defined that retirement for the self-employed in Israel is compulsory.
This law was passed in recognition of the fact that many self-employed people had not previously paid contributions, and found themselves destitute when they retired.
How much is a self-employed person required to contribute?
A freelancer in Israel, whether ossek patour or ossek mourchéis required to contribute according to the amount of his income in accordance with the following percentages: (amounts are valid for the year 2023)
- Up to a monthly income of 5,935 shekels, the percentage contributed for retirement is 4,45% of income.
- For a monthly income of 11,870 shekels, the percentage contributed for retirement is 12,55% of income.
- Above a monthly income of 11,870 shekels, you are not required to contribute more than 12,55%. The self-employed person may, however, choose to contribute more. However, he or she will only be entitled to tax benefits up to the maximum contribution allowed by law.
Which self-employed workers are exempt from paying pension contributions in Israel?
- Any self-employed person under the age of 21.
- A self-employed person who has held this status for less than 6 months.
- A self-employed person over 55
- Any self-employed person aged 55 or over as of 01 01 2017.
When should I start contributing?
The self-employed person must start contributing to his pension in 2023. Contributions can be made monthly or by annual deposit.
How do I know in advance how much to contribute?
Many self-employed people find it difficult to know in advance how much they will earn over the course of the year, and are therefore unable to correctly estimate the contributions they need to make.
Here are a few solutions that can help you overcome this problem:
- Contribute a few hundred shekels monthly or quarterly. At the end of the tax year, all you have to do is make up the shortfall according to your income or your accountant's recommendation.
- Contribute monthly or quarterly, depending on your estimated annual income. At the end of the tax year, all you have to do is make up the shortfall according to your actual income.
- Many pension funds allow you to contribute the full amount at once, just once a year.
However, there are two things to bear in mind:
- Do you have the cash flow you need to deposit the full amount of the annual fee in one go?
- Make sure that you don't lose your insurance cover or the continuity of your contribution capital rights.
What happens if a self-employed person does not contribute to his or her pension in Israel?
Any self-employed person who fails to make pension contributions will have to pay an annual fine of 500 shekels.
It should not be forgotten that the purpose of this law is to protect the self-employed in Israel and prevent them from finding themselves destitute when they retire.
In addition, in the following article, we detail the tax benefits you get when you contribute to your retirement.ALSO READ: Tax benefits in Israel for pension contributions & Keren Ishtalmoute
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