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After a few days of drops on the bond market, real interest on long-term linked bonds fell to 4.2 percent. The market seems to be aiming at 4 percent, which would be the lowest level in almost 10 years, since the former Bank of Israel governor, Jacob Frenkel, began raising interest rates to tame inflation.

Low interest rates are a blessing, as the steep gains by bonds attested over the year. But somebody is losing sleep nonetheless - the managers of Israel's pension funds, which will be hitting the capital market for the first time in 2004.

The treasury has calculated that the veteran pension funds (those closed to new members since 1995) have to achieve 4 percent yields a year to avoid actuarial deficits. No such threshold was set for the new pension funds, although Kesselman Finances calculated that they must achieve a 3.9 percent annual yield to avoid reducing pension payments to depositors by more than 15 percent. If yields fall below that, the company calculated, pension rights of depositors will suffer.

For the last decade, achieving a 4 percent yield has been considered a trivial matter. The high interest rates made it almost inevitable. All anybody needed to do was buy a government bond.

Yet the central bank's success in curbing inflation, and the signs that fiscal policy is managing to stabilize the economy and government deficit, have changed the picture. Bonds climbed in price and achieving a yield of 4 percent can no longer be assured.

In fact, a look at the provident funds, which are supposed to be an approximate model for the pension funds, shows that achieving 4 percent yield was never trivial at all. The average yield of the seven biggest funds in the 10 years from September 1994 to September 2003 was a mere 2.5 percent. That is not an encouraging statistic.

Their results were better in the last five years; high prevailing interest rates helped lift their average yield to 4.5 percent.

But a Kesselman Finances study found that the provident funds' yield over the last 15 years, during some of which they received designated bonds with assured yields, was only 3.9 percent.

One can argue about the technicalities of calculating their yields, but what's sure is that achieving 4 percent a year cannot be taken for granted. And if the pension funds fail to achieve that yield, their members' rights cannot be assured.

Pension fund depositors can only hope for one of three things. One: The NIS 15 billion fund the treasury is allocating to cover actuarial deficits will suffice. Two: The fund managers will outdo themselves. Three: That the treasury will lower the threshold.