Take the pitsouyim or leave them for retirement?
I worked for several years in a company in Israel.
Following my resignation, I received an email from the pension fund regarding severance pay in Israel - pitsouyim related to my resignation:
They are asking me if I want to withdraw the money from the pitsouyim or leave them for retirement. Can you advise me which is better? I'm still relatively young (43), and I must confess that I'm not thinking about retirement just yet.
First of all, you need to know whether you have to pay taxes on part of the pitsuyim or not.
In this respect, we inform you that when an employee receives severance pay in Israel, the latter are exempt
for 12,420 shekels / year. (in 2020).
This means that if you have 4 years' seniority, for example, your pitsuyim will be exempt to the tune of 12,420 * 4 = 49,680 shekels.
This exemption applies whether you resign of your own accord or are made redundant.
In your case, if you are taxable on part of the compensation, it is advisable to leave the taxable part in the pension fund.
The second question is whether you'll find a job quickly. The pitsouyim are there to "replace" your salary until you find another job. If you already have another job "in the pipeline", we recommend that you leave the money from the pitsouyim in your pension fund.
The third and final point is whether you need that money from the pitsouyim right now.
If this is not the case, it is advisable to leave the money in the fund, which will be returned to you when you reach retirement age.
As a reminder, pension contributions cover an average of 70% of monthly salary, which is relatively "low".
It is therefore often advisable to increase the amount in the pension fund.