Israelis are living longer, which is good news – but that longevity is the cause of a major drain on the National Insurance Institute’s resources. In fact, a Bank of Israel study says, the NII will run out of money by 2050 if benefits stay the same, and forecasts for the growth of the elderly population in Israel pan out.
The new study is actually an improvement on previous ones, which had predicted that the Institute would run out of money about ten years earlier. Nevertheless, the deadline will eventually come, and the country needs to be ready. That means either increasing funding for the NII by raising contributions from workers, or reducing the amount paid out in benefits.
If it wants to the rely on just the latter, the Bank study says that benefit allocations need to be cut by 10% starting in 2021; any delay will result in much more drastic benefit cuts. Those allocations can be cut in one of two ways – either by reducing the amount of money paid out to retirees and beneficiaries, or raising the age of eligibility for pension payments. Either of those would be a hard sell, especially given the fact that the relatively low pensions paid to retirees has been a hot-button issue for many political parties.
The unpopularity of such a move is one reason the government has delayed acting on the problem, even though it is quite aware of the problem. Failure to act sooner rather than later will require the NII to cut benefits by 40% or more by 2050, the report says.
The NII’s expenditures are based on money collected in national insurance payments from workers and businesses, as well as from the sale of bonds issued by the Finance Ministry for the NII. According to former Welfare Minister Chaim Katz, by 2022 the NII will have to begin selling off bonds it currently holds to finance its activities from interest, with the money running out by 2037.
In response to questions by TheMarker, the NII confirmed the Bank of Israel’s figures. And it agrees changes need to be made. “The date that the NII begins to run out of money is close, and it will have a major impact on all Israelis, especially the younger generation. We cannot delay action. Ensuring the social insurance of Israelis is essential.”