Compulsory Pension for Self-Employed

Within the 2017 Framework Legislation, the Government legislated new changes for retirement and benefits in order to ensure that the self-employed will be better prepared for retirement and periods of unemployment.

The law now requires a minimum contribution for retirement, along with tax benefits for making contributions.  A portion of the contributions can also be used when you’re not working, as unemployment insurance. Failure to make at least the minimum pension contribution will result in financial penalties – currently announced as 500 shekels.  However, the real penalty is in forfeiting the tax benefits from making the contribution which can be considerably higher in both value and percentage terms.

The minimum pension requirement can be divided into two tranches:

The first level is earnings up to 50% of the average salary in the economy.  For this first tranche of earnings 4.45% must be contributed.

The second tranche goes from 50% of the average salary in the economy (NIS 9,673) to 100% of the average salary in the economy.  For this second tranche, 12.55% must be contributed. For earnings above the average salary, contributions are optional, but are deductible up to the statutory limit (2017: NIS 33,024 if disability insurance is not paid).

For illustration purposes:

The pension contribution is allocated as follows: two-thirds for retirement benefits, and one-third for periods of unemployment.

The contributions can be made into qualified pension plans, provident funds and manager insurances depending on needs and circumstances. Over the past 5 years the returns on these plans in aggregate have been stellar while fees have come down tremendously.

As always, it is advisable to consult with a licensed professional to ensure that your retirement plans and obligations are being adequately met.

THE INFORMATION ON THIS SITE IS NOT INTENDED AS AND DOES NOT CONSTITUTE INVESTMENT, INSURANCE, LEGAL OR TAX ADVICE, NOR IS AN OFFER TO SELL ANY SECURITIES TO ANY PERSON OR A SOLICITATION OF ANY PERSON OF ANY OFFER TO PURCHASE ANY SECURITIES OR INVESTMENT PRODUCTS.