Employees in Israel face all of the usual financial risks of retirement as their global peers, in terms of worrying about saving and investing to guarantee retirement income. However, in addition, to the general considerations of saving now for the future there are additional factors which need to be considered.
Life expectancy in Israel is rising, and is near the top of the charts of OECD countries. The oft cited statistic proclaims life expectancy of 80 for men, and 84 for women. However this data is for a newborn, the life expectancy for a man aged 65 is 84-88, and for a women aged 65, it is 87-91 (1). This means that retirement assets may have to last 20 or more years.
Moreover, the retirement age for pension plans can and will most likely be nudged higher as life expectancy rises and the Government becomes increasingly concerned with the solvency of the insurers. This means that future retirement payments can be adjusted or deferred.
In terms of pension savings, Israel’s private pension plan assets as a % of GDP are low at 50.4%, versus 83% in the US (2). Israel has moved to increase this via enactment of the Compulsory Pension Law in 2008, however a shortfall still remains.
The Israeli private pension environment is also in constant flux resulting in a myriad of retirement products whose terms vary by vintage, while at the same time regulators regularly enact new directives which often necessitate changes in retirement strategy. This is further exacerbated by the integration of redundancy payments into the core structure of the plans fuels further complexity, as these payments can be a substantial portion of retirement assets. Employees who have had multiple employers, need to be even more careful in this space. Employees who are or will be self-employed will have other considerations as well, as often contributions are not consistent with future needs.
Contributions to retirement plans are a key factor in future retirement income. Pension plan statements typically state an expected future pension based on assets accrued and future contributions. However, the level of future contributions is a function of future employment. In the private sector, the likelihood of being employed at current level of income to retirement age is unlikely in many professions. This might mean lower level of retirement contributions at ages 50+ thus impacting future pension at retirement age.
Another pressing issue is the vulnerability of employees in the private sector space in the 10-15 years before retirement age, specifically in the high-tech sector. An example of this would be a mid-level manager who is made redundant at age 50, and has 17 years until his pension starts. Dimmed employment prospects might put a strain on the household budget and alter dramatically the future pension projections.
Due to this dynamic which is inherent to the structure of Israeli economy, this means that professional advice is needed now more than ever to navigate safely to a secure retirement.
(1) http://apps.who.int/gho/data/?theme=main&vid=60790
(2) http://www.oecd.org/daf/fin/private-pensions/Pension-Markets-in-Focus-2014.pdf