'Save early, save more: Pensions will be inadequate'
If the Finance Ministry's commissioner of capital markets, Yadin Antebi, is the "good cop" when it comes to supervising the country's insurance companies, then the deputy commissioner, Nir Cohen, is the "bad cop" who takes a tough line against insurance companies and insurance agents.
In a recent interview to TheMarker, Cohen pulled no punches in his criticism of the insurance industry and in his blunt assessment of the retirement savings of Israeli workers. On the latter, his message is clear: The pension that most Israelis will receive after retirement will not allow them to see out their twilight years in comfort.
Nir Cohen, what's it like to be the man who makes decisions about insurance and pensions in Israel?
Fun? We've never heard that from a regulator.
"It's very interesting. There's hardly a day when you don't do something new, and your actions come from a sense of feeling that you're on the right side, the public's side."
The public is the right side in the story and the insurance companies are the wrong side?
"It's not a matter of good guys and bad guys. Our role is to serve the public."
Cohen refuses to be caught saying that the insurance companies are on the wrong side of the fence.
"You must keep in mind that the insurance companies are for-profit organizations and they'll do whatever necessary to serve their profit. In contrast, Finance Ministry employees have the privilege of not having to look at the profits, so it's a lot more fun to work at the treasury. It's fun to do things where the bottom line is the public good and not just the net profit."
Let's get back to the right side and the wrong side. Is the public's anger at the insurance companies justified?
"Once we understand the motivations - then as long as the public allows the insurance companies, the pension funds or the provident funds to invest less in what's important to the public and more in what's important to [the companies and funds], that's what will happen."
So it's the public's fault?
"The problem with these areas is that the public has shown no interest until it's too late - after the workplace accident that leaves him unable to work, or after he is left without a pension and he wants to sue the insurance company."
Cohen says the fact that the most serious problems affect only a tiny percentage of customers means that on the face of it there is little reason for most of the public to get involved or put pressure on the companies and the ones who are affected face the insurers alone.
"Our job is to make the public understand the importance of these products and to wake them up ahead of time."
It's still hard to blame the public on this - after all, it's the insurance companies who are cynically exploiting its distress or ignorance.
"The insurance companies operate in a business environment, they aren't the public sector or charities, so if the public is indifferent then there's no reason for them to make an effort to satisfy them."
What can be done about the public's ignorance about its pension funds?
"Everyone should ask themselves how involved they were with making decisions about their retirement savings and how well they understand it. Regardless of their level of education, members of almost every socioeconomic level will be forced to admit that their knowledge in this area is minimal.
It's not the public's fault, it's just that for many years it didn't matter because [pensions] were connected to the workplace and were among the decisions that employers made for their employees.
Wake up, sleeping workers
The rules of the game have changed, Cohen says: Few employees stay at the same workplace for 40 years, until retirement, with a "guaranteed" pension that often did not meet its promises. And since 1995, when the old, defined-benefit pension funds were closed to new members and the pension market opened up to competition, the quality of the funds' management has had a direct effect on its customers' pension benefits.
"The public cannot continue to be indifferent. Since the field is very complicated, our role is to create the tools to enable the public to be involved: in other words, to create transparency and the ability to compare the various products. For example, to create agents of information in the form of pension advisers, and to create a retirement savings system that focuses on what is genuinely important: not tax credits but rather the quality of the investment management and of coverage."
In an age when customers can transfer their retirement savings from one instrument to another, doesn't it make sense for those whose retirement savings are through an insurance company to switch to a pension fund?
"Before switching retirement savings plans, I recommend consulting with a pension adviser. Price is not the only factor, so you must consult with someone over your specific case rather than relying on any rule of thumb."
What grade would you give to the overall Israeli retirement savings picture?
"People aren't saving enough. First of all, the numbers are the ones set 30 years ago. The accepted pension savings rate, about 17.5 percent of wages, was set when life expectancy was considerably lower than today. To this, add the fact that few employees nowadays pay into their pension funds for 40 straight years, and you'll realize that we have a problem. If we don't increase our retirement savings over the years and don't build up sufficient continuity, then at the end we will face a relatively low pension allowance."
How low, in terms of a retiree's last monthly paycheck?
"In my opinion, the average pension benefit will be 50% of the last paycheck, not 70% as we are accustomed to think."
What should I do now?
So what should I do now?
"First, don't withdraw money from your retirement savings, since you'll have lower pension benefits. There's a temptation to take the money now and say that in a few decades it'll work out.
"You also should try to continue paying into your retirement fund even during jobless periods. It's a good idea to glance at the annual reports that are sent to our homes and to try to understand them. Also, try to get an objective professional opinion, such as from a bank."
Cohen also recommends that salaried employees take advantage of the option to increase their mandatory retirement contribution from the accepted 5% of their gross salary to the 7% ceiling, irrespective of the employer's own contribution.