The Bottom Line / Good advice costs real money
TheMarker received a letter this week from Doron. "I own a small business with five workers," Doron wrote. "I have been looking for months and months for an objective adviser to help me and my workers make pension arrangements."
Doron wanted our advice on finding such an objective adviser. Regarding his own affairs, he confessed to having changed his insurance policy three times in two years, involving fines and so on. "I personally met with representatives of pension funds and insurance agents. I invested hours and hours, and to this day I feel I made my decisions based on wild guesswork."
"I am not a senior analyst," Doron wrote, "but I have a bachelor's degree in economics, and manage a company selling in 15 countries, with various weird and wonderful tax adjustments to make, and a budget laid out through to 2009. Yet that is not enough to guide me through the maze of pension savings."
If you read his words and are nodding in sympathy, you're in good company. Almost nobody in Israel, not even the best and brightest of lawyers and economists, can find their way through the maze of pension savings. Almost none truly understands the difference between credit and offset; how much is permissible on each different pension instrument; why the ceiling is NIS 10,000 for the self-employed and NIS 29,000 for salaried employees; what the ceiling is - and much more; and why, in the name of all the gods, a person who had been saving for his pension in a provident fund can't do that any more?
Conspiracy buffs find all that grist for their mill: it's all a wily plot by the clerkdom at the treasury, mainly the tax officials, through the ages. The tax law relevant to pensions and savings is horribly complex: nobody can possibly understand it without extensive training. Training to be an accountant, tax consultant or pension adviser, that is.
You cannot possibly make learned decisions on tax or pension issues without one of the above, which assures the above of a living. The incessant demand for interpretation assures the very clerks who wrote the rules they can earn a nice living when they leave the public sector.
It is all too easy to buy the conspiracy theory when you dive into the slippery spaghetti of the tax/pension regulations in a feeble attempt to make a decision you must make. Conspiracy seems all the more likely when you discover that it doesn't have to be that way.
Britain recently carried out a sweeping reform of pension tax rights. It was designed to achieve one thing, and only one thing: to simplify matters, so knotty tax issues don't hopelessly tie up your decisions. The British set a single ceiling on savings, 1.5 million pounds sterling, below which savers are entitled to exemption from the "lifetime allowance charge." Any form of pension savings, up to that level, are entitled to tax breaks. C'est tout.
Reports from Britain indicate the reform significantly boosted savings for pensions. The simplicity helped Britons reach better decisions about their savings. They felt more secure about making a choice.
We can only imagine what would happen here if Israelis could detach from the advice of insurance agents when judging pension instruments. That day, pension savings here would start to grow.
And until that happy day? You'll just have to wait until the banks start providing advice on pensions, and hope their advice is worth something, though the banks have a history of letting down their household customers.
Or, you could try the Finance Ministry Web site at www.mof.gov.il and check the list of bodies licensed to provide advice on pensions. That is, objective advice, as the adviser is not paid a commission by the insurance companies or pension funds, which means he/she can be objective about them.
That by the way is another reform copied from Britain. You pay an objective adviser directly; what costs money is worth money.