Screaming newspaper headlines declaim the immediate need for a pension savings safety net, and the government is about to announce just such a plan. After all, we're talking about double-digit negative yields by pension funds, totaling a multitude of shekels, if not more.
However, as usual, the public debate in Israel is rushing from one extreme to the other, from utterly ignoring pension funds to outright panic. The result is exaggerated imagery of public harm, of a public dependent on the capital market and pension funds battered by the financial crisis. But, in fact, we're not talking about the majority of the population.
We are told that mature savers a few years away from retirement have been severely harmed. However, the savings of most of these people are in instruments that have been little affected, if at all.
Most mature civil servants enjoy funded pensions which have not been affected by the crisis whatsoever. Most mature employees at former Histadrut (General Federation of Labor in Israel) owned companies also have no immediate need for a pension safety net, because nearly all are invested in the old pension funds (established before January 1, 1995), which have been less affected by the capital market, and already have the best safety net of all: designated government bonds that bear a real annual interest of 5.57%. In addition, most older savers who have manager's insurance have insurance policies with guaranteed yields that are independent of the capital market.
When mandatory pensions came into effect at the beginning of 2008, it was argued that one million Israelis lacked pension savings. Since then, most of these people have joined the pension market, but the remaining several hundred thousand people who have no pension savings - a dismal figure in and of itself - are unaffected by what is happening in the capital market.
In other words, the impression that has been created that every Israeli has lost large chunks of their pensions is misleading. Not that that makes it easier for those who have lost money in their pension funds. Actually, it has the opposite effect.
Published by Globes [online], Israel business news - www.globes-online.com - on November 30, 2008
© Copyright of Globes Publisher Itonut (1983) Ltd. 2008