The government will designate a single pension fund next year for all salaried employees who have not elected a pension fund on their own, the Finance Ministry said Tuesday.
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The fund will be chosen in a bidding process based on the lowest management fees charged to account holders. The winner will provide pension services to these employees for three years.
The reform is designed to bring down pension management fees and increase competition in the industry. The Israeli pension market is currently dominated by five funds, so in an effort to boost competition, preference will be awarded to funds with a market share below 5%.
The plan was announced in a circular by Finance Minister Moshe Kahlon and Dorit Salinger, the supervisor of capital markets, insurance and savings.
“The reform is designed for workers who don’t have access to the necessary bargaining power to lower their management fees,” Salinger said. “The process gives an advantage to small pension funds and helps eliminate entry barriers into the market, which is currently controlled by just five entities.”
Kahlon said many employees pay excessive management fees that eat into their pension savings.
Although the pension fund selected by the government will be in place for three years, employees will receive perks under the plan for five years. If an employer chooses not to have its workers join the fund designated by the government, it will have to conduct its own bidding process among funds.
This bidders will compete based on criteria including management fees, rate of return and quality of service. This approach is an effort to increase transparency and curb conflicts of interest in an employer’s choice of pension fund.