Retirement in Israel: how does it work?

retirement in israel Cabinet Expert Comptable Dray & Dray

In a nutshell:

  1. For employees, pensions in Israel are deducted directly at source by the employer.
  2. The amount of contributions is 6% for the employee and 6.5% for the employer.
  3. What's more, any employee can contribute independently to a personal pension fund if they wish.

Employee contribution

  1. Pension contributions in Israel are shared between the employee and the employer.
  2. According to the law on employee contributions (current as of January 1, 2017), the employee contributes 6% of gross salary towards retirement, while the employer, for his part, will pay an additional 6.5% into the pension fund.
  3. The employer will also have to contribute 6% of the Gross salary for severance pay (פיצויים), which will be added to the pension if not withdrawn by then.
  4. The employee's pension contributions entitle him/her to a tax credit of 35% of the deposit (capped).
  5. When does the employer have to contribute?
    1. If the employee already has an active pension fund: the employer must contribute after 3 months' service, retroactive to the 1st day of employment.
    2. If the employee does not have a pension fund: the employer must contribute from 6 months' seniority with the company. Contributions are not retroactive.

Independent contribution

A self-employed person with income from his or her activity can contribute up to 16% of his or her profits (also capped).

This entitles him to tax (see article dedicated to this topic).ALSO READ: Mandatory pension contributions for the self-employed in Israel

Withdrawal of investments at retirement age

When you reach retirement age (67 for men, 62 for women), your accumulated contributions will be paid as follows:

  1. Contributions made up to 2008 will be withdrawn all at once.
  2. Contributions made after 2008 will be paid out in the form of a monthly pension.

However, if you intend to withdraw your accumulated contributions all at once, pay close attention to the taxation that will apply. (35% of the amount withdrawn) It is highly recommended that you seek professional advice before making such a withdrawal.

A person entitled to a monthly pension of more than 3,850 shekels (indexed to the cost of living in 2008) will be able to withdraw the amount accumulated in excess of this in one go.

What happens if the employer doesn't pay into the pension fund?

Employers who fail to pay contributions to the pension fund will be required to pay late penalties and interest.

In some cases, this fraud can land the employer directly in prison (without having to go through the starting block).



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