TAU Researcher Proposes Unbundling Israel's 3 Trillion Shekel Pension System

The concentration of Israel's long-term savings in the hands of a few institutional giants poses systemic risks to the public, according to a recent position paper published by Tel Aviv University. Authored by regulatory expert and financial researcher Dr. Tal Hafling under the auspices of the Sacher Institute, the study calls for a radical overhaul of the country's mandatory pension system.

The Dangers of Institutional Uniformity

According to the position paper, titled "Mandatory Pension Savings: A Proposal for Product Diversification and Fragmentation of the Public's Investment Portfolio," the primary issue in the Israeli pension landscape is not merely the concentration of assets within a single-digit number of mega-entities, but the uniformity in how public funds are managed. The long-term savings sector, currently estimated at 3 trillion shekels, is controlled by a handful of institutions where key decisions are concentrated in investment committees and central investment managers.

Consequently, 3 trillion shekels are managed based on the outlook of a very limited group of investment managers who are inherently vulnerable to herd behavior. With nearly identical portfolios, the public is exposed to acute investment errors and systemic risk. By the end of 2025, the five largest insurance companies—Menora Mivtachim, Harel, Migdal, Clal, and Phoenix—collectively managed 88% of new pension fund assets: Menora alone held 27% of the market, Harel and Migdal held about 17% each, Clal 15%, and Phoenix 12%. In contrast, four major investment houses—Meitav, Altshuler Shaham, More, and Infinity—held a mere 11% combined.

Unbundling the Pension Product

Hafling proposes a simple solution to break down this high concentration: unbundle the pension product into distinct components covering operations and custody, investment management, and insurance coverage. Instead of all three services being managed by the same institution, a saver would hold their "pension wallet" with a stable entity like a bank, choose a diverse external investment manager such as portfolio managers or mutual fund houses, and obtain insurance from an insurance company.

"My research began under two hats: first as a client and second as a researcher," Hafling told Calcalist. "As a client, I looked for a way to manage my pension investments and found that due to regulation and regulatory circulars, it is impossible to understand what is actually inside these tracks. If a client tries to figure out what they are buying, they lack the ability to do so. You think you have an investment mix of 60% stocks and 40% bonds, but then you read the fine print and see that even the stocks contain bonds, the bonds contain stocks, and both contain heavy deposits. You cannot build a portfolio where you know what is going on."

Reversing Bachar Reform Principles?

This new proposal directly challenges one of the foundational pillars of Israel's savings market established since the Bachar Reform in the mid-2000s. That landmark reform sought to separate banks from managing provident and mutual funds to reduce conflicts of interest and the concentration of financial power, resulting in long-term savings activities being sold off from banks to institutional investors. Since then, the prevailing paradigm in Israel has been a strict separation between banking and the management of pension and savings funds.

Hafling does not propose returning investment discretion to the banks. Instead, she suggests utilizing banks as the infrastructure for the pension wallet—acting strictly as operational and custodial entities—while investment management remains in the hands of separate, specialized professionals. This separation aims to distribute decision-making power, expand product variety, and reduce the systemic risks stemming from a handful of executives managing the vast majority of the national savings.