Most people will change jobs a number of times over the course of their working life, with some even changing their profession as well. Aside from the challenges in navigating your career, there is a further challenge in handling your retirement accounts with each change.
The Israeli pension system is designed for an employee who is on the “40-year plan”, staying with the same employer for the full course of their working career. Unfortunately, this system clashes with the reality of the ever-changing global environment which results in wholesale shifts in industries and diminishing job security for most employees outside of the public sector. This is further exacerbated by the necessity of opening a “new” policy with each new employer and regulatory changes, such that, one can easily accumulate 10s of plans/policies by retirement.
When changing jobs, the first factor to be aware of is the cessation of payments to your pension plan. The pension plan is comprised of 3 components: retirement savings, life insurance and disability insurance. The retirement components will remain as savings for future retirement, however as contributions have stopped the projected annuity payment at retirement will be impacted by the length of non-payment period. Fortunately, the insurance components will remain in effect for 5 months after your termination date. This insurance is vitally important, and even when unemployed you want to maintain coverage for you and your family. The premiums for this policy will be paid from within the policy for the first 5 months. Following this period you will be offered the opportunity to extend this coverage for an additional 24 months. The premium for this coverage can come from the savings in pension or paid via direct debit.
When you are starting your new job, you are legally allowed to choose the pension product, i.e. keep your existing policies. However, your new employer will need to sign off on your choice of pension and direct all contributions to your pension as instructed. All contributions from your new employer will be shown separate from the contributions of previous employers, albeit in the same pension plan. There are various issues regarding tax planning, severance pay and pension plan options that are outside the scope of this article and require professional advice from a licensed agent.