Complementary pensions (Mandatory)
Regulatory Framework
2017: Change of earmarked bonds allocation in the pension funds. New pension funds are allowed to invest 30% of their net monthly assets in earmarked government bonds that provide a guaranteed real rate of return of 4.86%. Before the change, the allocation was equal between all savers regardless of their age. After the change, while the overall allocation remains 30% for the entire fund, the allocation varies by age and status: pensioners, savers over 50, and savers under 50. Pensioners are entitled to a 60% allocation; savers over 50 receive a 30% allocation; and savers under 50 receive the residual amount.
2017: Mandatory pension for self-employed workers. The Ministry of Finance issued a mandatory pension contribution requirement for self-employed workers.
2016: Automatic consolidation of inactive pension accounts. Regulations were issued in order to allow the automatic consolidation of a saver's inactive account in one management company, to his/her active account in another management company.
2016: Default pension funds. Certain pension funds were chosen to serve as default options for employees who did not make an active decision. The funds were selected for a limited period using a management fees parameter.
2015: Change of investment tracks in pension funds. Age-appropriate investment tracks were established as the default savings vehicles. In these tracks, as the saver becomes older, the investment's risk level is lowered.
2013: Establishment of a central information system for pension savings. This system enables all pension savings information to be retrieved in a quick, centralized manner.
2012: Change of ceiling for management fees. Setting a lower ceiling for management fees in life insurance policies & provident funds. The new ceiling is set to 1.05% of accrual and 4% of contributions, instead of 2% from Accrual.
2011: Locating unidentified beneficiaries. Set of regulations demanding financial institutions to establish a mechanism in order to locate plan members whom contact with has been severed as well as beneficiaries of plan members following a member's death. A "negative" incentive, in the form a reduction in managing fees, was introduced in cases where contact with members is not re-established within a given period of time.
2008: Portability regulations. Those regulations created a platform for an easy and timely transfer of funds between different long-term savings plans. Since the publication of these regulations a growing amount of members are using the option of portability in order to increase their bargaining power with the financial institutions.
2008: Mandatory pension for employees. The minister of industry, trade and labor issued an extension order of the collective agreement between employers and employees regarding contributions to pension plans. This order effectively made contributions to pension plans mandatory for employees and their employers.
2008: Control of Financial Services (Provident Funds) Law, Amendment No. 3. The capital accumulated in any of the pensions products (pension funds, provident funds and life insurance), can no longer be directly withdrawn, and can be only paid as an annuity. Until the amendment, provident funds and some of the life insurance plans were able to pay the capital accumulated as a lump sum.
2005: Control of Financial Services (Provident Funds) Law; provides for the authorization and supervision of pension management companies and provident fund management companies.
2005: Control of Financial Services (Pension Counseling and Pension Marketing) Law; supervises the work of councilors in the field of pension.
1997: Directives of the Supervisor of the Capital Market, Insurance, and Savings for the Establishment and Management of New and General Pension Funds; introduce plans implemented through subsidized pension funds (New Pension Funds( and non-subsidized pension funds (General Pension Fund), regulate their administration, and contain minimum requirements concerning benefits.
1981: Control of Financial Services (Insurance) Law; provides for the authorization and supervision of insurance and pension management companies.
1964: Income Tax Regulations; provide for the approval and supervision of pension and provident funds, establish rules for the protection of rights.
1961: Income Tax Ordinance; regulates the tax treatment of employee and employer contributions and benefits.
Different legal rules apply to pension funds first authorized before 1995 (known as old pension funds). These funds have not been permitted to accept new members since 1 January 1995, and are not covered in the following sections.
Types of Schemes
Pension management companies and insurance companies may establish complementary pension plans and offer them to employers.
Employers are mandated to affiliate all of their salary workers to a pension plan and the contributions are mandatory for earnings up to the medium wage. Employers can increase their contributions, on a voluntary basis, and affiliate some or all of their employees to such a plan. The affiliation and the promise to make higher contributions than the mandatory contributions may be based on agreements between employers and individual employees or on company or industry-wide collective agreements with trade unions.
The choice of the pension management company or insurance company to which the employee is to be affiliated is made by the employee. Employees have, depending on plan rules, considerable choice concerning the benefit package that provides different replacement rates for disability, survivor and old-age pensions.
Types of plans:
New pension funds: Pension management companies may establish pension plans implemented through New pension funds. These plans must provide old-age, disability, and survivor benefits. The covered salary on which contribution rates are applied is up to twice the national average salary.
Pension plans implemented through New pension funds must invest 30 per cent of their assets in earmarked government bonds providing a guaranteed real rate of return (see section Asset management).
All the plans, which were opened after 1994, are defined contributions plans, but there is still a large amount of money invested in plans in the type of defined benefits, which were closed in 1995 to new members (the old plans).
The establishment of New pension funds is subject to the approval of the Commissioner of the Capital Markets, Insurance, and Savings Authority (CMISA). In addition, tax approval must be obtained from the CMISA for each tax year.
General pension funds: Pension management companies may establish pension plans implemented through General pension funds. These plans must be defined contribution and provide at least old-age benefits. There is no ceiling on covered salary and plans may be an alternative to a plan implemented through a new fund or complementary to such a plan for the part of the salary exceeding twice the national average salary. Investment in earmarked government bonds providing a guaranteed real rate of return is not permitted for general pension funds.
The establishment of general pension funds is subject to the approval of the CMISA. In addition, tax approval must be obtained from the CMISA for each tax year.
Provident funds: Provident fund management companies and insurance companies may establish provident plans.
Provident funds are "pure" savings plans, and all contributions made to these funds are intended for the accumulation of sources for retirement income. Provident funds, unlike pension plans and life insurance policies, do not provide members of the plan with the ability to purchase life and disability insurance from their contributions to the plan.
Until 2008, provident funds were authorize to pay the capital accumulate in a lump sum once the member in the fund reaches the age of 60. After 2008, the capital accumulated in provident fund cannot be directly withdrawn and must first be transferred to a pension fund or a life insurance plan for payment as annuity.
The establishment of provident funds is subject to the approval of the CMISA. In addition, tax approval must be obtained from the CMISA for each tax year.
Life insurance: Insurance companies may establish plans (that are implemented through life insurance policies).
Insurance companies must obtain yearly tax approval for their life insurance policies from the CMISA.
All plans: Participation is voluntary for covered employees and self-employed. Additional voluntary contributions are not prohibited, but will not necessary earn tax reliefs.
Institutional Framework
PMCs must be established as limited joint-stock companies and must obtain an insurance company license from the Commissioner of the Capital Markets Insurance, and Savings (CMISA). Minimum capital requirements apply.
Each PMC must be governed by a board of directors of which at least two members (known as public directors) must not be members of one of the plans established by the company. All directors and officers of the company must have adequate qualifications.
The board of directors may delegate its powers to committees consisting of at least three of its members. One member of each committee must be a public director.
The board of directors must appoint the following committees:
- Audit committee (of which all public directors must be members);
- Investment committee;
- Balance sheet committee (optional) to discuss and approve financial statements and actuarial reports.
- Risk management (just for large PMC - AuM - more than 10 Billion NIS)
- Compensation (the Audit committee can nominate as the Compensation committee)
Each PMC may establish one defined contribution plan, implemented through a new fund, and one defined contribution plan, implemented through a general fund. PMCs must establish separate pension funds for each of their plans and maintain a separate bookkeeping and actuarial system for each fund.
Provident funds companies (see below) can manage new and general pension funds as well, and their institutional framework is identical to the PMC's framework.
Provident funds: Provident fund companies and insurance companies manage the contribution and benefit administration.
Provident fund companies and insurance companies must be licensed by the CMISA.
Life insurance: Insurance companies manage the contribution and benefit administration.
Insurance companies must be licensed by the CMISA.
Coverage
Covered population
Enforcement of affiliation
Financing / Investment
Sources of funds
Member contributions
Employer contributions
Other sources of funds
Methods of Financing
Asset Management
Benefit provisions
All plans: No legal rules.
Vesting rules:
All plans: Employee contributions vest immediately.
Vesting of employer contributions depends on the agreements between employers and employees or trade unions (see section Plan sponsors) and there is no legally prescribed vesting period.
Preservation, portability, transferability
Retirement Benefits
Benefit qualifying conditions
Withdrawal of funds before retirement
Benefit structure / formula
Benefit adjustment
Survivors
Benefit qualifying conditions
Benefit structure
Benefit adjustment
Disability
Benefit qualifying conditions
Benefit structure
Benefit adjustment
Protection of Rights
Protection of Assets
Financial and Technical Requirements / Reporting
Whistleblowing
Standards for service providers
Fees
Winding up / Merger and acquisition
Bankruptcy: Insolvency Insurance / Compensation Fund
Disclosure of information / Individual action
Other measures
Tax Treatment
Taxation of member contributions
Taxation of employer contributions
Taxation of investment income
Taxation of benefits
The Capital Markets, Insurance, and Savings Division (CMISA) receives and verifies reports submitted by supervised entities and may carry out on-site inspections at any time.
Since 2017, the CMISD (Capital Markets, Insurance and Savings Division) became an independent authority as the CMISA (Capital Markets, Insurance and Savings Authority) and also supervises new institutions (mainly in the lending market) which were currently unregulated (for example: electronic money institutions, currency providers, payment institutions, pay-day loans providers, financial companies, P2P platforms, etc.).
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Internet: http://www.mof.gov.il
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