Taking Stock / Help! Let us out!
That's some story our correspondent Shlomy Golovinski wrote in yesterday's paper, about Migdal Insurance's towering inferno of cash, about how the sages at the insurance company invested half a billion shekels in buying land and building a gorgeous, giant skyscraper in central Tel Aviv that nobody wants.
Migdal bought the plot at the height of the Tel Aviv office space bubble. Next week it is inaugurating its magnificent edifice, which sadly looks likely to stand almost empty for a long time to come. Only a third of the space has been rented out, mainly because of the region's huge surplus in office space.
The whole endeavor left a towering impact on Migdal's financial statement. The company has already written off NIS 80 million for the project, a decidedly impressive sum given that it touted the investment as a highly conservative one. Factoring in Migdal's cost of capital, the loss to its depositors may yet double.
You may be grinning, dear reader, feeling a certain glee at how the savviest of investors can come a cropper as well. Yet suddenly you start to feel queasy, once you realize that the money Migdal invested wasn't its own. It was yours.
Guess what ...
Yes, that half-billion that Migdal sank into the Museum Tower on Berkovitz Street near the court building in central Tel Aviv came from profit-sharing policies, otherwise known as your pension.
You wondered what on earth to do. Just five years ago you realized that Migdal, like most of Israel's insurance companies, sold you (via an agent) a pretty bad and expensive policy. You grasped that a huge chunk paid for expensive risk insurance, in case you couldn't work: at least 10 percent of the monthly premium you paid was being tossed away.
You called your agent, and after a protracted battle, managed to lower the cost of your risk coverage. Now you were only throwing away 2 percent to 3 percent of the monthly premium.
Yet suddenly you realize the risk was only part of the story. What decides your future pension income in 25 years' time is the yield Migdal's investment managers achieve on your money, after the huge management fees they charge.
What yields can you expect after that sorry story on Berkovitz Street? What yields can you expect after Migdal achieves an accrued yield of 52 percent over 10 years, which is 15 percent below the yield its rival Menorah Holdings achieved?
You are astonished at the gap. While insurance companies earn 20 percent to 30 percent returns on their equity each year, you're getting barely a fifth of that amount. While the insurance companies pay their managers, three, four or five million shekels a year, you're watching your pension shrink by hundreds of thousands of dollars.
In short, you suddenly don't want your money to stay at Migdal any more, and you probably don't want your money in some profit-sharing scheme. You would rather choose your own investment manager or maybe even manage it yourself.
Chained to the wall
How upset you are when you discover that your pension is trapped at Migdal until you retire. According to the regulations that the capital market and insurance commissioners have approved from generation to generation, insurees are captive at the insurance companies they chose. There is no escape or way to move your capital.
The incumbent capital market and insurance commissioner, Eyal Ben-Chelouche, has spearheaded a number of reforms in the capital market and pension and insurance spheres, designed to spur competition and provide more information to insurance customers.
But how does that information help us? In the fastest-growing area in the pension sector, life insurance, nothing has been done. You read in the paper about the dismal returns and inflated management fees, and there is nothing you can do about it.
You and tens of thousands of customers who deposited some NIS 60 billion at the insurance companies call on Ben-Chelouche to release you from the chains, allow you to move your money as you please, and enable you to manage the money yourself, paying no management fees whatsoever.
And if you want to invest in some office building on Berkovitz Street, we trust you'll find a way. We understand that two-thirds of the tower remain empty, begging for your attention.