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After worsening the pension conditions for most workers as part of the 2003 economic reforms, the Finance Ministry is now working reduce the benefits for government employees who enjoy state-funded pensions.

These pensions are for all veteran state employees whose pensions come out of the state budget, and in the past they did not contribute toward theirstate-funded pensions.

Such workers with budgetary pensions include state employees, teachers, military and police, local authorities and religious councils. They also enjoy much better conditions than workers in contributory pension plans who pay into their pension funds monthly.

A secret meeting was held recently between representatives of the Histadrut labor federation's pensions division, headed by Dorit Tene-Perchik, and a team from the treasury lead by the wages director, Eli Cohen.

The treasury officials informed the Histadrut that they intended on worsening the conditions for budgetary pensions in two ways: increasing the contributions of state employees from the present 2 percent to 5.5 percent of salary, the same as for contributory pension plans; and changing the way pensions are calculated. Instead of computing pensions based on an employee's final salary, the worker's average salary over his entire employment history will be used, as is done by pension funds since the 2003 reforms.

Treasury representatives, including those from the Budgets Division, warned at the meeting that the state's actuarial deficit for these non-contributory pensions has reached the enormous sum of NIS 470 billion.

"We can no longer sit around doing nothing, and we need to act quickly to prevent this bubble from exploding in our hands," explained one of the treasury officials to the Histadrut's representatives after the meeting.

The treasury also claimed that the present situation, where pensions are calculated according to final salaries at the time retirement, must stop. "It is umimaginable," they explained, saying that state employees who retire automatically receive a final raise just before retirement, that artificially increases their pensions by 6 to 8 percent. Treasury officials said that it was completely unreasonable to continue such a situation.

Former finance minister Benjamin Netanyahu decided to cancel the pre-retirement raises starting at the beginning of 2004 as part of his economic reforms package, due to the high cost and the actuarial deficit it causes; but the objections of then-Histadrut chairman Amir Peretz, and later his successor Ofer Eini, forced the postponement of the decision a number of times.

Recently Eini and Finance Minister Roni Bar-On agreed on burying the idea once and for all.

The Histadrut objected to the treasury's demands at the meeting.

"In 1999 we made an immoral payment to the treasury in that we agreed that every new employee who joins the civil service, the military, local authorities or religious councils would not enjoy the rights to a state-funded pension, but would join a contributory pension fund," said Reuven Goldberg, the head of the union representing academics in the social sciences and humanities.

"We gave up enough then, and we have no intention of allowing any further damage to the pension conditions of the workers," explained Goldberg.