Israel's Baby Boomers Facing Rocky Retirement

Meirav Arlosoroff
Meirav Arlosoroff
Send in e-mailSend in e-mail
Send in e-mailSend in e-mail
Meirav Arlosoroff
Meirav Arlosoroff

In Israel, three years for a governing coalition can appear like an incredibly long time. 'Tis true that Benjamin Netanyahu managed to avert early elections by forming the biggest coalition in Israeli history, but the whole affair goes to show how shaky the culture of governance in Israel is.

One thing that this unusually stable government could do is shore up Israel's social-security network, which has more holes than net.

The National Insurance Institute is Israel's social-security organization. It is responsible for handling almost all government payouts, from unemployment benefits to child allowances to pension payments for retirees.

The problem is that to make sure the NII has the resources to continue functioning smoothly for another 40 years, it must curb its current spending, which will be highly unpopular.

While Israeli governments serially heave and implode, only to reform, the biological clock doesn't stop ticking. In the two years since 2010, it is the nation's biological clock that has been making itself heard. That year, the Israeli baby boom generation began retiring and receiving pensions.

Did you think the term "baby boom" only referred to the generation born in the U.S.  in the decade following WWII? Not so. Israel has its own baby boom and the emphasis is on "has" and not "had." The Israeli baby boom took off in 1947 and hasn't abated since.

That year, 1947, was the year in which the horror at the enormous scale of the Holocaust's evil began to sink in. It was also the year in which solid hope for the establishment of an independent, Jewish state in the Land of Israel took shape.  These two elements combined to drive a powerful urge to procreate among the Jewish community in Israel – a desire that never did die down.

In other words, the birthrate jumped in 1947 and never dropped back.

This permanently higher birthrate was a boon for the young state and particularly for its elderly citizens. From 1947 to date the number of retirees (the children of the demographically smaller generation before 1947) receiving pension benefits was significantly lower than the number of citizens actively participating in the workforce.

In statistical terms, the ratio between the working age population (aged 20-64) and the population of pensioners (ages 65 and up) was high, consistently ranging from 5.5 to 6.0.

The number of workers versus the number of pensioners is critical to the viability of intergenerational pension (also known as" pay as you go") systems. These are based on the younger generations paying taxes to finance the pensions of their elders.

For Israelis, the old-age benefits payments paid out by the NII are their inter-generational pension system.

As long as the members of this baby boom generation were working, the NII was financially sound. There were many more workers paying money into the system than pensioners cashing out benefit payments.

From 2010, that stability began to crack. That was the year that those born in 1947 starting collecting pension payments.

In other words,  the original jump in the annual number of births in Israel finally being counterbalanced by  a jump in the annual number of retirees.

In the coming 20 years, from 2010 to 2030, the ratio of workers to pensioners in Israel will decline from 5.5. to 3.8. – a reduction of 30 percent.  That ratio will continue to decline but by 2050 will stabilize at 3.1 workers for every pensioner, approximately half the ratio that characterized Israel in the 1980s.

You don't need to be an expert in multigenerational pension systems to understand the implication of these numbers.  Israel won't have be enough workers to finance benefits for its senior citizens.

No government system can change that cold, hard fact. The state must tackle this problem.  There is no other choice. But now, there is opportunity

In Israel, birthrate jumped in 1947 and never dropped back.Credit: Moran Maayan / Jini

Comments