The Finance Ministry has completed its draft proposal to preserve the pensions of Israeli retirees on fixed incomes, and to provide additional assistance to those whose pensions do not provide them with sufficient income for living expenses. Among the proposals is the establishment of a NIS 3 billion fund that will provide price supports for government bonds that pensions funds can invest in, with a guaranteed interest rate to provide income for pensioners.
The proposals were also sent to pension funds for their perusal and comment. The funds have 10 days to respond. The Insurance Authority in the Finance Ministry, which developed the plans, hopes to begin the new program by the start of 2017.
Under the program, the bonds issued by the government for investment by pension funds will carry a guaranteed interest rate of 4.86 percent, linked to the consumer price index. The interest is far more than an individual can get at a bank. The proposal will thus ensure that pensions grow, instead of shrink, as has been the case over the past few years as interest rates have crashed.
With the plan, officials hope to solve what has become a growing crisis in the pension fund market. Most of the existing funds were established based on the likelihood that they would grow about 4 percent each year, and actuarial tables for payouts were designed to take into account that level of interest and the age of retirement, determining the amount to be paid out each month. The new plan will restore that balance, ensuring a proper payout for pension recipients.