Self-employed stride toward new pension deal
About 400,000 of the self-employed could transfer a substantial portion of their retirement savings from bank-owned provident funds to pension funds soon.
About 400,000 of the self-employed could transfer a substantial portion of their retirement savings from bank-owned provident funds to pension funds soon. Israel Businessowners Association president Zeev Weiner is negotiating options with the Finance Ministry's insurance regulators.
For many years, the norm has been for the self-employed to save for their golden years using provident funds. According to Weiner this stemmed from the business ties many business owners had with their banks. Weiner said banks required provident fund deposits as a precondition to a credit line for small businesses.
One key difference between the provident and pension saving methods is that at the end of the savings period, the provident fund pays the retiree a lump sum (capital savings), while a pension fund pays a monthly stipend. According to Weiner, this left more than half of Israel's self-employed without a pension.
The talks center on allowing businessowners to save in pension funds while still receiving the tax exemptions inherent today in the provident fund savings system, as well as raising the ceiling for tax-exempt pension deposits to 18.3 percent of income, the limit available to salaried employees. The self-employed can currently claim exemptions on deposits of 12-16 percent.
Weiner believes the new arrangement will take affect in early 2005 and will allow small business owners to split their pension savings between pension and provident funds, creating both a lump sum and stipend payouts.
"The talks are advanced. Until now, the self-employed could not use pension funds because the banks linked their retirement savings to their businesses' accounts. Our recent survey indicated that 50 percent of the self-employed would like pension savings. The Finance Ministry also likes the idea that they put more money away for retirement. Some of the moneys would remain in bank-owned provident funds, so they don't completely lose on the proposition," Weiner said.
Next week Weiner will meet with the treasury's Supervisor of Insurance Eyal Ben Chelouche.