Those Outside the Workforce to Pay More: Finance Ministry’s Plan to Cover National Insurance Deficit

The Finance Ministry has recently dropped a bombshell by including a forecast in its three-year budget program: the National Insurance Institute (NII) will lack the funds to meet its obligations as early as 2029. The NII has already been operating at a deficit in recent years, which the Finance Ministry attributes to two main sources: the dramatic expansion of eligibility for long-term care and disability benefits, and the current structure of insurance contributions and discounts.

Cash-flow issues at the NII are not new and are rooted in past mistakes, some of which were made by the Finance Ministry itself. Historically, the NII transferred its surplus collections to the Finance Ministry in exchange for dedicated bonds, with interest rates falling over the years from approximately 5% to about 3%.

Two years ago, in response to the war, an NII reform was implemented. The Finance Ministry initially considered freezing tax brackets and credits or cutting child benefits, but due to political pressure, it opted to increase insurance contributions instead. This move placed the primary economic burden on the working public and was criticized by professional bodies for undermining the NII’s budgetary independence, as funds intended for its coffers were diverted to cover general government expenses.

Changes to Collection Procedures

It appears the Finance Ministry is now preparing to advance a dramatic change in collection procedures. Currently, a salaried employee earning the average wage (about 13,500 shekels) pays 5,880 shekels annually in contributions. Unemployed individuals pay 1,716 shekels, while yeshiva students and university students pay 576 shekels—less than 10% of the amount paid by an average earner.

A June ministry document stated that while raising contributions across the board could reduce the actuarial deficit, it would increase the effective tax burden on workers and potentially harm the labor market. Instead, the ministry proposes increasing the payment base for those who do not work. While student discounts are limited to degree programs, attorney Shlomit Rabitzki Tor-Paz of the Israel Democracy Institute notes that yeshiva student discounts are permanent until age 67.

"Unlike university students, whose studies provide professional training that increases future wages, yeshiva studies do not provide future professional training," she explains.

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Demographic Challenges and Long-Term Sustainability

Research from the Israel Democracy Institute shows that the cumulative gap in contributions for a yeshiva student compared to an unemployed person until age 67 is 55,800 shekels. Since January, following a High Court of Justice ruling regarding conscription, yeshiva students aged 18–29 without an IDF exemption have lost their discount and now pay contributions at the same rate as the unemployed. The number of yeshiva students is estimated at approximately 175,000.

Experts warn that collection adjustments alone will not suffice. Past public committees have recommended comprehensive solutions, including establishing a new fund with increased government participation and an actuarial balancing system. Prof. Eitan Sheshinski and other experts have proposed separating old-age and long-term care benefits, raising the retirement age for women, linking retirement to life expectancy, and unifying NII collection with income tax systems.

According to NII data, the institution’s deficit is projected to hit 18 billion shekels by 2030 and 48 billion shekels by 2050, driven by an aging population and demographic shifts. Forecasts suggest the ultra-Orthodox share of the population will double to 30% by 2065. Currently, 350,000 working-age Israelis remain outside the labor market, paying minimal contributions of 143 shekels per month.