Growth is good, but not good enough
The Finance Ministry plans a graduated retirement, with a final mandatory retirement age.
The Ministry of Finance has begun intensive staff work to raise the retirement age of men and women, top ministry officials have confirmed. When the process is completed, the retirement age will be 70, from the current age of 67 for men and 62 for women.
"The Ministry of Finance is working on a new pension formula," said Minister of Finance Yuval Steinitz yesterday. "This is a revolutionary reform in Israel. Instead of forcing people to retire in a single step - working full-time one day and unemployed the next - the intention is to allow people to retire gradually. This will enable people to adapt and prevent burnout."
Top Ministry of Finance officials admitted that the plan's primary objective is to delay or raise the retirement age for men and women, but because of the ministry's past failures to do so, this time it is trying to implement a graduated higher retirement age. "The idea is to postpone the retirement age for everyone gradually. We will conduct a pilot study to offer people this program," said a top ministry official. "This is necessary. Life expectancy is rising, many 70-year olds are healthy and want to continue working. We are aware of petitions to the labor court against employers for compelling retirement."
The Ministry of Finance says that the plan does not include cancelling the retirement age. "We don’t want for there to be no retirement age. There must be a retirement age, otherwise, some workers are liable to reach 80 and be barely functioning, at which point their employer will have to send for tests at an occupational physician and require proof which will complicate matters. There must be an age at which a worker must retire," said the official.
The Ministry of Finance is fully aware that the country is not yet ready for such a change, and that it must prepare to delay the retirement age. "The employer must be ready for the measure and prepare for it. It is also necessary to examine for which jobs the working age cannot be extended," said the official. "For example, a CEO cannot be reduced to a half-time job."
A top Ministry of Finance official said that the method for gradually raising the retirement aged has many advantages. "It will be possible to retain organizational knowledge and expertise without filling a new position. Sometimes, a position of five hours a day or three days a week lets an employer keep an employee with the organizational experience."
The Ministry of Finance does not conceal that the measure has an economic aspect as well as the human aspect, and the ministry's officials are really interested in the economics. "There are three reasons why it's necessary to raise the retirement age," said the official. "On the macroeconomics side, rising life expectancy and the growth of the working-age population is falling to below 2.2%, which means less economic growth. If we've gotten used to 3-4% GDP growth a year, within 20 years we'll have 2.5-3% growth - automatically. You must increase the labor force."
The second reason is the dependency ratio between retirees and the working-age population. "Today, there is one retiree for every five workers. The ratio is plummeting, and in the next decade, the ratio will be one retiree for every three workers," said the official.
The third reason is fiscal-actuarial: the earlier a worker retires and starts to receive a pension from National Insurance, the cost is higher. The Ministry of Finance also intends to improve the exchange ratio between pension payments to a worker and his or her last salary. The ratio improves proportionately to a higher retirement age as an employee sets aside more money and receives a pension for fewer years. "Each year in delaying retirement has far-reaching effects on the economy," said the official.
The Ministry of Finance said that it was examining various incentives for implementing the plan. The first incentive is to prevent harming employees' pension rights when they go from a full-time to a part-time position at the start of the retirement process. The second step is to create a system of financial incentives to encourage employers and employees to join the gradual retirement program. The third point is to amend labor laws. The ministry said that, after completing the staff work and submitting recommendations, it will consult with employer organizations and unions.
Published by Globes [online], Israel business news - www.globes-online.com - on March 4, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013
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