Israel's Ministry of Finance is to allow the self-employed to withdraw up to one third of the savings in their compulsory private pension plans as a kind of "unemployment payment" to help them survive the Covid-19 crisis. Minister of Finance Israel Katz and the Supervisor of the Capital Market, Insurance and Savings Moshe Bareket have announced that they will amend the regulations so that the self-employed who have closed their businesses can withdraw the money.
However, it looks like the Covid-19 crisis is simply an excuse for the move with such an amendment to the terms of private pension plans meant to pass back in 2017, when the regulations for compulsory private pension plans for the self-employed was first introduced.
Private pension plans were made compulsory for the self-employed in 2017 to bring them in line with the compulsory pension plan for salaried employees. The regulation included a minimum amount to set aside into the pension or provident fund into the plan by the self employed while the State would designate some of the savings as a type of unemployment pay for the self employed.
The ability of the self-employed to withdraw unemployment pay was set in law from the start but the ability to actually do so was dependent on regulations to be implemented by the Ministry of Finance - something that was not done even in the first wave of Covid-19 pandemic in the spring.
The minimum savings that the self-employed must set aside is 4.45% of income up to an amount of the median salary in the economy. Above the median salary and up to the average salary in the economy, the self-employed are required to set aside at least 12.55%. Two thirds of the amount set aside is for the pension fund and one third can be used "as a component for assistance during unemployment."
Until now the self-employed could only withdraw their pension savings when reaching the retirement age, or otherwise pay a tax fine.
However, the Insurance Agents Association strongly opposes the measure. "It is inconceivable that the State should recommend the savers dip into their pensions and future savings by encouraging redeeming money through tax exemtion on the compensation they have saved. We are talking about small business owners whose pension savings are the only income that they will have when they reach retirement age. The State is encouraging them to redeem their money because it has a budgetary problem following the Covid-19 crisis. It is a disgrace and shameful to call this unemployment pay."
Published by Globes, Israel business news - en.globes.co.il - on October 15, 2020
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