News Column

Treasury seeks to raise retirement age again

February 27, 2014

By Adrian Filut, Globes, Tel Aviv, Israel

Feb. 27--Top Ministry of Finance and National Insurance Institute officials have initiated confidential discussions on measures needed to deal with the National Insurance's future financial condition. The measures on the table include raising the retirement age for both men and women, raising National Insurance provisions, and levying National Insurance payments on housewives.

National Insurance payments total NIS 71 billion a year. 40% of the total are old-age pensions, and 7% are for nursing care. The National Insurance's income totaled NIS 76 billion in 2013, 46% of which was from the public, 29% from the Ministry of Finance, and the rest from other sources. The Ministry of Finance says that without its transfers National Insurance's annual deficit is NIS 2-3 billion.

The biggest threat to National Insurance includes a slowdown in the growth in the working-age population from the current 2.2% a year to 1.2% in the near future, significantly increasing the burden on the working-age population, which will have to pay more to support old-age pensions. According to the Bank of Israel, the ratio between the 20-64 population and the over-65 population will from fall 5.5 to just 3 in 2015. National Insurance data also show a rise in the dependency ratio between the working-age and retired populations from 18% in 2014 to 28% in 2050. These ratios are even greater for the communities with low participation in the labor force -- haredi (ultra-orthodox) and Arabs.

Ministry of Finance and Bank of Israel data show that these two trends will reduce Israel's annual growth rate by 1.3 percentage points.

The Ministry of Finance believes that raising the retirement age and increasing people's working years, which will increase payments to National Insurance while simultaneously reducing its pension payments, are essential. Due to the sensitivity of the subject, the ministry has not set any new retirement ages. The National Insurance Institute says that raising the retirement age is important, but that it can be done carefully, consensually, and gradually.

The Ministry of Finance also wants housewives to pay National Insurance, which would boost its revenues by NIS 200 million a year. The ministry has included this proposal in the annual Economic Arrangements bill every year for the past decade, only to see the Knesset Finance Committee remove it.

The National Insurance Institute also wants employers' National Insurance provisions to be increased. The 2013-14 Economic Arrangements Law raised this provision from 6.5% to 7%, but at the last minute, Prime Minister Benjamin Netanyahu reduced the increase to 6.75% to support the business sector. Another proposal is to shorten mandatory military service, which will bring people into the workforce sooner.

National Insurance officials also demand cancellation of the hospitalization grant, which it says should be paid by the Ministry of Health.


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Source: Globes (Tel Aviv)

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