Investment Houses Slam Proposal to Scrap Mandatory Pensions for Under-40s
The Association of Investment Houses warned that exempting workers under 40 from mandatory pension contributions will widen social gaps and reduce retirement funds. The council argues the move raises net wages by 500 NIS monthly.
The Association of Investment Houses has strongly criticized a proposal by Prof. Avi Simhon, chairman of the National Economic Council, to exempt workers under the age of 40 from mandatory pension contributions. In a letter sent on November 1 by Association CEO Nimrod Sapir, the organization warned that the move would harm vulnerable populations, widen social disparities, and significantly reduce future retirement benefits.
The proposal, published by the National Economic Council in September, suggests allowing workers up to age 40 to forgo their personal pension contributions, which currently stand at 6% of their salary. Employer contributions—6.5% for severance and 6% for rewards—would remain unchanged. According to the council, the measure is expected to increase net wages for young workers by roughly 500 NIS per month, at the expense of a lower future pension. Employees would still have the option to contribute voluntarily.
Impact on Long-Term Savings and Insurance
The Association of Investment Houses agrees that young workers face heavy burdens with housing and raising children, but argues the chosen remedy is fundamentally flawed. Sapir wrote that the current format undermines the foundational principle of mandatory pensions, which rely on long-term accumulation and the compounding effect of interest over decades. Data indicates that eliminating these savings could cost future retirees tens of billions of shekels in lost returns.
Furthermore, the association points out that higher-income earners can afford to save voluntarily and benefit from tax breaks, whereas low-income earners will likely spend the extra cash immediately, reaching retirement with severely depleted funds. The group also challenged the council's baseline assumptions of a 1.5% annual real wage growth and warned that the rise of artificial intelligence could create employment instability, leaving workers unable to make up for missed early contributions.
Proposed Alternatives
According to the association's calculations, shifting employee contributions means a vastly higher percentage of remaining funds will be diverted toward insurance coverage rather than actual savings, especially for younger demographics. To address the high cost of living without dismantling retirement security, the association proposed several alternatives:
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Limiting relief to specific wage brackets.
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Reducing taxes directly to boost disposable income.
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Directing freed-up funds into more liquid savings vehicles, such as investment provident funds.
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Reversing the default so employees continue saving automatically, requiring active opt-out choices and professional counseling.
The association concluded that the burden of increasing public net income rests with the government and should not be financed by undermining long-term retirement savings.
