A Blow to the Pensions of Millions of Israelis: A Jump of Hundreds of Percent in Payments
A quiet move in the pension funds of the Israeli public is leading to a jump of hundreds of percent in monthly payments. Who are the savers affected immediately, how do insurance companies exploit the law, and how can you protect yourself?
A transparent but painful wave of price increases is sweeping through the pension accounts of the Israeli public: insurance companies are exploiting small clauses in agreements to hike management fees to the maximum rate permitted by law — 6% of deposits and 0.5% of accumulated savings. For many savers, this involves a jump of hundreds of percent in monthly payments, which sometimes occurs without them noticing.
The triggers for this jump are well known: termination of employment with an employer who has a preferred arrangement, the expiration of a five-year benefit period, or a transition to the status of an "inactive account" following unpaid leave or a prolonged cessation of deposits.
As revealed in a report by "TheMarker" on Sunday, the phenomenon is not marginal: about 70,000 active savers and nearly one million inactive accounts are currently paying the maximum management fees at the five largest insurance companies. The main parties celebrating this situation are the management companies, which have derived an estimated passive income of about 200 million shekels from the gap between the average rate and the maximum rate.
A significant difference exists between insurance companies and investment houses that manage default funds. While at investment houses management fees are fixed for 10 years by virtue of Capital Market Authority tenders (even for inactive accounts), at insurance companies, half a year without a deposit is enough for the company to update the rates upwards — subject to prior written notice.
How can you avoid the management fee trap? The key is vigilance. It is important to track letters and notices from the insurance company, initiate a negotiation call immediately upon receiving a price increase notice, or consider transferring the funds to a selected pension fund. In addition, it is recommended to locate forgotten accounts and perform a consolidation of funds through the government's "Har HaKesef" website or the Pension Clearing House — while avoiding private entities that offer search services for an excessive fee.
