PM's Office Proposes Halting Pension Contributions Under 40 to Boost Net Pay
The National Economic Council has proposed halting mandatory employee pension contributions until age 40 to boost young workers' disposable income, sparking debate over long-term savings versus immediate financial relief.
The National Economic Council at the Prime Minister's Office has introduced a proposal that could significantly change the monthly salary slips of millions of Israelis: eliminating the mandatory employee pension contribution until the age of 40, while keeping the employer's full contributions intact. At this stage, this is a reform proposal rather than a decision that has taken effect. If adopted, young workers could see hundreds of shekels more each month in their net pay, with the mandatory employee contribution returning to its current format only starting at age 40.
The proposal comes at a particularly sensitive time, ahead of elections, and naturally raises questions about the timing of introducing a reform whose immediate meaning is increasing the disposable income of many workers.
Hundreds of Shekels More Each Month
Currently, as part of mandatory pension regulations, employees allocate a portion of their salary to retirement savings, alongside employer contributions. Under the new proposal, until age 40, the employee's deduction would cease by default, but the employer would continue to deposit its full share.
For example, an employee with an insured salary of 10,000 shekels who contributes 6% to a pension currently puts aside 600 shekels a month from their own money. Eliminating the contribution would not necessarily translate entirely into an identical net addition due to existing tax benefits, but it is expected to significantly increase the amount remaining in their hands each month.
It is important to emphasize that employees would not lose the option to save. According to the proposal, canceling the contribution would be the default only, and anyone wishing to continue contributing their own money to a pension before age 40 would still be able to do so.
The Argument: Money is Needed More at Age 30 Than at 70
Behind the proposal is a study conducted by Prof. Avi Simhon and Avraham Zupnick of the National Economic Council. The two examined the development of an individual's income throughout life—from their early years in the labor market to receiving retirement benefits after stopping work.
The current system provides relatively high financial security for old age, but does so at the price of reducing disposable income precisely during the years when young households need it most.
The study, based on Central Bureau of Statistics data and simulations of pension savings and allowances, points to a gap between the period when the state forces employees to save and the period when they particularly need disposable income.
What Will Be Left for Retirement?
This is obviously the big question. Halting employee contributions for many years means less money entering the fund—and above all, forfeiting valuable years of returns and compound interest.
However, according to the study's findings, in many cases the expected pension for workers at retirement age is high relative to the net monthly income they received during a significant portion of their working years. If implemented, the reform could spark intense public debate over long-term financial security versus immediate relief for households.
