A million shekels over a career: How much do we pay to National Insurance compared to the rest of the world?
An Israeli employee earning 15,000 shekels a month may transfer, together with their employer, more than a million shekels to National Insurance and health insurance over 40 years of work. In Israel, payments are lower than in much of Western Europe, but the link between the payment amount and the old-age pension is weaker than in the USA and Germany.
Every month, National Insurance and health insurance contributions are deducted from the salary. The employer also pays an additional amount, which does not appear in the employee's net pay, but is part of the cost of their employment. An employee earning 10,000 shekels per month pays about 608 shekels, and the employer adds about 522 shekels. At a salary of 20,000 shekels, the employee pays about 1,825 shekels and the employer about 1,282 shekels. Someone earning 40,000 shekels already pays about 4,259 shekels per month, and the employer adds another 2,802 shekels.
The accumulated amount is significant. An employee earning 15,000 shekels pays 1,217 shekels per month, and the employer adds 902 shekels. Together, this amounts to about 25.4 thousand shekels per year. Under a simplified assumption of constant real wages over 40 years of work, the employee and employer will together transfer slightly more than a million shekels.
However, the money is not accumulated in a personal account. It funds the healthcare system, old-age pensions, unemployment, maternity, disability, long-term care, work injuries, child benefits, and survivor benefits. Therefore, a healthy person with a continuous career may receive less than they paid, while a person who needs benefits or long-term treatment may receive much more.
In the USA, payments are based on salary – and the benefit is also linked to it. In the USA, the employee and employer each pay 6.2% of the salary to Social Security, up to an annual ceiling, and additionally pay for Medicare. The main difference is that the benefit is calculated based on the 35 highest-earning years. Someone who earned and paid more is expected to receive a higher benefit, although the mechanism is progressive and relatively favorable to low-wage earners. In Israel, by contrast, an employee who earned 40,000 shekels and an employee who earned 10,000 shekels may receive a similar basic old-age pension, despite a huge gap in payments.
In Europe, they pay more – but receive more services. There is no uniform European model, but in Germany, France, and Scandinavian countries, social contributions are generally higher. In Germany, for example, the public pension is based on points accumulated according to salary and the number of years worked. The more the employee paid and the more points they accumulated, the higher their pension.
In many European countries, the employee pays more throughout their career, but also receives a wider safety net for unemployment, parental leave, health, disability, and long-term care. Therefore, one cannot compare only the collection rate; one must also check which services the family is not required to purchase privately.
In Israel, the basic old-age pension is relatively low and does not reflect the amount paid over a lifetime. On the other hand, the employee receives universal health insurance and a wider safety net than the American one. Compared to Western Europe, we generally pay less, but also receive less in some areas.
The bottom line is that National Insurance is not an investment but social insurance. Someone who does not need the system may feel they paid a lot and received little; someone who was injured, fired, became disabled, or needs long-term care may find that the system prevented their financial collapse.
