Treasury planning pension reforms
Will consumers be paying less in fees on their pension savings and having more left over to live on when they retire? The Finance Ministry's commissioner of capital markets, insurance and savings, Oded Sarig, is taking another step in that direction.
Sarig is considering severing the connection between the fees paid to insurance agents and the level of management fees paid by those saving for retirement. He also wants to require agents to inform their clients how much money they expect to receive from insurance companies for selling customers a pension policy.
Sarig's plan to lower management fees paid on pension savings has been held up in the treasury's insurance supervisor division for several months. One of the reasons is the division's decision to make changes intended to increase competition in the pension industry.
A major overhaul
The original proposal to lower management fees has turned into a mini reform package that will include all the changes Sarig wants to make in the pension sector.
Many problems have arisen in the pension industry in the five years since the implementation of the Bachar committee reforms, which severed the banks' control of provident fund and other savings sectors, among other changes.
Sarig and other treasury officials feel now is the time to do something about the entire industry.
As a result, they want the law to deal not only with reducing management fees but also with removing barriers to competition in the pension savings industry.
Limiting fees paid to insurance agents
What the new law will not include is specific limits on management fees levied by insurance companies on pension savings, because Sarig's office does not want to fix market prices or change the present ceiling on fees: 2% of accumulated savings in provident funds and life insurance policies, and 1.1% in pension funds.
But the new law will include a long list of steps to facilitate the reduction of fees. For example, one option is to ban pension managers from linking the level of management fees charged to the sums paid to insurance agents for bringing in customers. It is common for agents to get up to 50% of all the fees customers pay on their retirement savings for years.
This would enable the fees to drop and reduce insurance agents' motivation to sell pension products that have higher fees, regardless of whether they are in the customer's best interest.
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