After about a year of uncertainty about the pension insurance
allocation ratios according to Amendment number 12 to the Control
of Financial Services (Provident Funds) Law of August 2015, the
matter has recently been resolved.
In the wake of Amendment number 12 to the law, which triggered
considerable public debate and opposition, the Manufacturers'
Association, the Presidium of Israeli Business Organizations, the
Histadrut Federation of Labor and additional entities intervened
and subsequently, in April 2016, a collective agreement was signed
between the Presidium of Israeli Business Organizations and the
Histadrut Federation of Labor, which regulates the increase in the
ratios of both the employee's contribution and the
employer's contribution to the pension component in
employees' provident funds, and this, in relation to all types
of provident funds – pension funds and managers'
insurance policies (hereinafter: "the Collective
It should be noted that the numerous discussions and the signing
of the Collective Agreement led the Ministry of Finance to accept
the position of the parties to the Collective Agreement and,
subsequently, in June 2016, the provisions of the Control of
Financial Services (Provident Funds) Law were amended to conform to
the provisions of the Collective Agreement.
At the end of May 2016, following the signing of the Collective
Agreement, an Extension Order was issued that applies the
provisions of the said Collective Agreement to the entire economy.
The Extension Order prescribes the following provisions:
As of July 1, 2016, employers'
contribution to the pension component increased to 6.25% and, as of
January 1, 2017, it shall increase to 6.5%.
contribution to the pension component was also updated and
increased to 5.75% and, as of January 1, 2017, it shall increase to
If an employee shall opt to insure
his salary under managers' insurance as a form of pension
insurance, the employer shall also be required to purchase, at its
own expense, a disability insurance cover at the rate required to
insure 75% of the employee's salary. Also in the instance of
managers' insurance, the new increased allocation ratios
specified above shall apply to the employer. The Order further
prescribes that the percentage of the employer's allocation to
pension insurance must not be less than 5%; however, the total
allocation for the pension component and the disability component
together must be between 6.25 – 6.5%. The Extension Order
also clarifies that, insofar as the cost of the disability
insurance cover shall be higher than 1.25% during 2016 and higher
than 1.5% as of 2017, the employer shall be obligated to assume the
increased cost of the disability insurance, so that the percentage
of the employer's allocations for pension and disability
insurance together shall not exceed 7.5%.
Following the signing of the Collective Agreement, the
provisions of the general approval regarding section 14 of the
Severance Pay law, which refer to the pension insurance allocation
ratios, are expected to be amended to conform to the new Extension
The provisions of the Extension Order came into
effect on July 1, 2016 and they require employers to take action to
update the pension rights of their current and new employees, as
well to update the wording of their employees' employment
Originally published August 29, 2016
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