Director of Capital Markets, Insurance, and Savings Dorit Salinger told the "Globes" Israel Capital Market Conference that the rising life expectancy posed a serious challenge to the pension savings market. She also announced the launching of a "justice" hotline to which employees can complain anonymously about employers, who will be liable to punishment, including possible imprisonment, for misdeeds.
Salinger spoke with "Globes" deputy editor-in-chief and news editor Eli Tsipori at the "Motivation for Regulation - Regulatory Challenges in the Capital Market" conference session.
"The policyholder now has more responsibility, but we expected the employer to support the employee, so that he gets an appropriate pension," Salinger declared. "There's a compulsory pension now, but not all the employers contribute to a compulsory pension. They contribute to funds, but that's not the full extent of their responsibility. The employer should check that the money has reached the right place, because these deposits are the basis for the employee's pension. The employee has the right to choose, and to look for a pension product suitable for him at any entity.
"Queries from the public show that the employer is forcing the employee to join a specific pension product chosen by the employer, and we regard this as an extremely grave matter. An employee has the right to select the place where he saves. Just as he chooses his bank, he should choose his pension or provident fund. We've decided to become active in this matter, and we're putting a hotline on the air - a justice pension line - through which each employee can complain about improper behavior by his employee without exposing his identity. We'll issue fines and check the cases in order to guarantee the employee's rights from his employer. The fine can be up to NIS 1.8 million, and the penalty can be even more severe - imprisonment. There are a lot of complaints, but not enough have reached us to fully utilize our capabilities in this matter.
Guaranteed coefficients versus lower management fees
"I want to explain the matter of policies with guaranteed coefficients," Salinger said. "Up until 2012, the insurance companies marketed policies with guaranteed coefficients. This guaranteed coefficient is actually the factor according to which pension savings are distributed to policyholders when they retire, and which determines the amount of pension paid at retirement. Life expectancy has undergone a dramatic change, and there is therefore concern about meeting this promise.
"Switching between insurance companies has always been common, but switching by policyholders with a guaranteed coefficient was banned in 2012 in order to ensure that the pensioner would really get what he has been promised when he retires. For him, this is a psychological barrier that we thought the market would overcome because management fees have also been reduced, so we thought the market would bear it. The management fee benefit should be weighed against the economic value of the guaranteed coefficient, which is not really guaranteed.
"This barrier has not really been breached, and there's no competition, so we decided to promote churn. What does that mean? It means that the policies with the coefficient can be switched between companies, while preserving the coefficient and receiving the benefit of different management fees. This way, competition will increase, or so we hope. At the same time, everyone has to make his own calculation of the economic value of that coefficient, and balance it against the management fees and insurance coverage provided by the new policy.
"Today, policies with guarantee coefficients amount to NIS 200 billion. There are policies with much more attractive coefficients that will be more difficult to transfer, because they reflect a life expectancy that does not correspond to the actual situation. We want a stable and sustainable solution that also maintains the insurance companies. This will happen in the coming weeks; we're at a very advanced stage.
"The policyholder himself will have to decide whether this discount is worthwhile for him, and the insurance company proposing that the policyholder switch to it will have to provide the difference between the life expectancy and the coefficient. I therefore don't expect much switching by people with these coefficients."
Published by Globes [online], Israel business news - www.globes-online.com - on June 2, 2015
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