State Comptroller Yosef Shapira published a report on the situation with pensions in the country and the willingness of the state to care for elderly citizens.
One of the most resonant conclusions of the auditor General for 2008 entered into force of law on mandatory pension insurance of employees.
Shapira concluded that 36.9 per cent of employees who are forced to make pension contributions in the framework of the law, in fact, bear the losses.
Carrying out pension contributions, workers reduce their current earnings in order to receive a pension in the future. However, for workers with low income, the size of future pension does not cover the loss of benefits for living wage that they would have received if they had retired. Thus, they give up part of income currently, despite the fact that in the future (after retirement) their income will not grow.
The auditor General proposes to correct the situation, using the method that will be introduced for individual entrepreneurs: reducing payments to the national insurance Institute with low wages and the increase in deductions from wages exceeding the average for the country should compensate for pension contributions and increase the current income of workers with low income.
Another serious issue raised in the report – to subsidize the active members of the pension funds of those members who have already retired.
At the moment the amount of the pension is calculated on the basis of annual return of 4%, is unrealistic under the current circumstances, in recent years, a situation when the discount rate most Central banks and interest rates on government bonds are around the zero mark.
According to the law, the pension Fund cannot be «scarce», so if the pensions of those who retired recently, is overpriced compared to the market situation, the share of the other members of the Fund is reduced. According to the auditor General, members of pension funds are subsidizing pensioners about 10% of their pension.
Shapira notes in the report that the Ministry of Finance is trying to partially compensate for this bias, increasing the share of special government bonds with a yield of 4.86% allocated to retirees, from 30% to 60% of the portfolio, while existing members of pension funds such bonds will not stand out.
However, this step can lead to serious problems with public debt, as increasing life expectancy and increasing number of pensioners the state will be forced to allocate more funds for such special government bonds. Already, the share of such shares in the public debt is about 25%. In addition, it does not solve the problem of Fund members receiving disability payments to or in connection with the death of a spouse/parent.
Cross-subsidies existing members of the pension funds of those who have already retired, creates another problem: retirement funds don’t want to take pensioners, effectively depriving them of the opportunity to bargain for commissions. According to the report, all 34.419 pensioners who are members of the new pension funds at the end of 2015, have paid the maximum size envisaged by the Commission in the amount of 0.5%. The real cost of managing the investment portfolio of a pensioner is significantly lower than active member of the Fund.
The report also stresses the problematic situation in the field of pension consulting. Insurance agents dealing with pensions, are in a situation of conflict of interests as the insurance companies offer them rewards for promotion of their pension programs. The number of pension consultants, the fees regulated in recent years is decreasing. In addition, their fees are too high for customers with new pension funds, which are the main population group that needs their services.
A separate Chapter is devoted to the issue of military pensions. The auditor General has criticized the behavior of the command of the IDF, creating serious problems to the Ministry of Finance on the issue of control over pension contributions and systematic violation of the agreements. In addition, in negotiations with the IDF was not involved the division of chief auditor Ministry of Finance, which is responsible for the control of actuarial matters.
The report stresses that all the chiefs of the General staff without giving reasons and without any control from the Ministry of Finance increased pensions demobilizing officers of 7-8% on average.
Yosef Shapira argues that the state is not ready for aging population from a financial point of view, as the issue of raising the retirement age, and the question of payment of old age benefits, health care, disability. The auditor General has accused the Finance Minister Moshe Kahlon in breach of the decisions of the current government and previous governments regarding the reduction of the actuarial deficit of the national insurance Institute («bituah Leumi») and in delaying the decision on the retirement age for women.
In addition, the report criticized the work of the actuarial Commission of the government, which session are logged, and part to present them the documentation is missing.
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