As the Ministry of Finance’s plans to reduce pension contributions, it would be wise for Ministry officials, as well as National Economic Council chairman Prof. Avi Simhon, to hear what the experts behind the Global Pension Index think of their proposal.
Tel Aviv University Harel Center for Capital Market Research director Prof. Dan Weiss warns, "The Ministry of Finance’s new plan is expected to lead to a major fall in the quality rating of Israel’s pension system, due to a negative impact on the replacement ratio. In other words, reducing pension savings at a young age will diminish the overall size of future pensions,"
Prof. Weiss conducted the Israeli portion of the research for the Global Pension Index. He tells "Globes," "Contrary to recent proposals, the report advises policymakers to prevent any harm to the pensions of young parents during periods when they are not working, specifically, while on parental leave."
In short, the rating of Israel’s pension system is at risk if the government moves forward with its plan to reduce pension contributions.
Ministry of Finance’s plan: cut contributions to boost net income and consumption
This warning comes following a dramatic proposal being promoted by the Ministry of Finance: reducing the rate of pension contributions. As previously revealed by *Globes*, the Ministry is currently examining a cut in the pension contribution rates across the economy. Mandatory pension contributions began in 2008. Currently, employees save between 18.5% and 22.83% of their salary for retirement each month: the employee contributes 6% (with the option to increase this to 7%), while the employer contributes the remainder (ranging from 12.5% to 15.83%) toward pension savings and severance components.
The National Economic Council also supports this initiative, having proposed the elimination of mandatory pension contributions for individuals under the age of 40. While this move would increase households' monthly net income by about NIS 500, it could prove detrimental at the time of retirement, especially given that life expectancy continues to rise. This could result in a reduction of NIS 2,000 shekels in the monthly pension payout.
Global Pension Index: Israel ranks 5th
While the Ministry of Finance’s new plan is still on the drawing board, Israel’s pension system has received an exceptionally high score in a global pension quality index. Israel is one of only five countries worldwide to achieve the highest possible rating - an "A" - with a score of 81.9 points. This represents a further improvement over the previous year, according to the 2026 Global Pension Index (formerly the Mercer Index), published by Marsh and the CFA Institute, which evaluated 55 countries.
The index assesses three key dimensions: adequacy (whether the pension is expected to provide sufficient income during retirement), sustainability (the system's stability and its capacity to sustain long-term payouts), and integrity (the extent to which the system protects the rights of savers).
Regarding Israel, a notable positive feature is the mandatory pension contribution requirement, which ensures pension coverage and a "good replacement rate." This refers to the proportion of an employee's final monthly salary that will be available as income during retirement. Within the index, the "adequacy" component is actually Israel’s weakest area - rated at "B+" (ranking 14th globally with 79.4 points). Any further decline in this specific metric could negatively impact Israel’s overall standing in the Global Pension Index. In terms of system sustainability, Israel ranks fourth globally, while in the integrity index, it ranks ninth.
Regarding areas for improvement, the report suggests that Israel increase pension contributions for older employees and grant pension rights to young parents for periods spent caring for small children.
"Israel’s fifth-place global ranking is a significant achievement that attests to the strength of our pension system," says Neomi Gisser, CEO of Marsh Israel. "Nevertheless, the report indicates that there is still room for improvement, particularly on the income available to employees following retirement. Given rising life expectancy and shifts in the labor market, employers must look beyond mandatory pension contributions and consider how the arrangements they offer their staff will align with future needs. We view pension planning as an integral component of an organization’s risk management; our role is to help employers make sound decisions today that will serve both them and their employees well into the future."
Published by Globes, Israel business news - en.globes.co.il - on October 20, 2026.
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