(Almost) Official: Treasury Bailing Out Israeli pensions

Globes had the story this morning about the takeaways from the Israeli Treasury meeting to bail out the pension system.

There are a few salient details, according to Globes:

• the plan has received support from the Finance Minister, Roni Bar-On, and Bank of Israel Governor, Stanley Fischer
• the deal appears to be a compromise between Histadrut chairman Ofer Eini’s broader plan and the narrower plan put forth by the Finance Ministry
• The safety net will cover people over the age of 57.
• People will be covered either when they reach mandatory retirement age, or three years after the plan comes into effect, whichever is later.
• The safety net will have a means test of NIS 1.5 million in cumulative pension savings. Anyone applying for coverage will report all his or her pension savings. Anyone with more than NIS 1.5 million in cumulative pension savings will not be covered. Based on the plan’s actuarial assumptions, NIS 1.5 million is equivalent to approximately NIS 8,000 in monthly income; anyone with a monthly pension income greater than NIS 8,000 will not be covered.
• The maximum reimbursement will be NIS 750,000 throughout the period of the safety net.
• Upon entering the safety net program, the funds will be classified as monthly payments, rather than capital funds.
• Participants in the plan will be allowed to switch between investment institutions, provided that the transfer is between the same category of investment.

IsraelNewsletter’s Katsman has written cynically about what’s actually going on behind the scenes.  While various officials have described Israel as an island within the raging financial sea, we’ve been more skeptical.  As the U.S. begins to dole out handouts for the financial industry and beyond, Israel’s socialist leanings become more pronounced during an election year (say it ain’t so, Bibi).

Anyway, it will be interesting to see how far Israel goes in bailing firms out when the rallying cry is still that there is no real financial crisis in Israel.

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Comment by Dr. Sebastian Uremadu

2008-12-21 09:12:09

Israel’s cumulative pension savings scheme is wthat it is a welcome develoopment in that it is not a speculative venture rather it is a savings mobilising scheme for investment projects strides.

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