Israel Considerably Understating Size of Pension Obligations, Watchdog Claims

Comptroller report says state’s pension obligations have been growing rapidly, mainly due to dramatic increases in promised payments to employees in the defense establishment.

About a dozen elderly Israelis seated in a row, as the Histadrut federation's pensioners hold a meeting.
Tomer Appelbaum

The government’s pension bill has been growing rapidly in the last decade and a half and its total obligations are considerably more than the treasury’s official figure of 648.5 billion shekels ($168.8 billion) at the end of 2015, the State Comptroller said on Wednesday.

The official figure, which is equal to 56.4% of gross domestic product doesn’t include so-called bridge pensions paid to career army officers, who normally retire early, State Comptroller Joseph Shapira said in a report that was highly critical of the government’s handling of the issue.

In any case, the comptroller said the real pension bill was probably 746 billion shekels at the end of last year, or 64.9% of GDP.

It said the state’s pension obligations have been growing rapidly, mainly due to dramatic increases in promised payments to employees in the defense establishment. In 2003, pension obligations amounted to 48.6% of GDP while the defense sectors share rose from 17.8% to 23.9% at the end of 2015, it said.

At the end of last year, pension obligation to the defense establishment was no less than 42.4% of the total.

Unlike most of the private sector, until a decade ago civil servants and career soldiers had their pension contributions covered by the government rather than by a pension fund that invests the contributions made by an employee and his or her employers. Since the early 2000s, new hires no longer enjoy a budgetary pension, but the state is still obligated to older employees.

The State Comptroller recalled that the cabinet made a decision 11 years ago to equalize terms between public and private sector pension terms, including a plan to have civil servant contribute 2% of their salaries to retirement, but nothing was ever done.

The original cabinet decision had instructed the finance minister to either negotiate terms with the Histadut labor federation or, failing that, to legislate the change. But in a stinging criticism of the Finance Ministry budget division, the State Comptroller noted that nothing was done to implement the decision.

In response, the budget division said it planned to recommend legislation to the finance minister, but in the 2017 Budget Arrangements Law – where such a change would likely be legislated – nothing of the sort appears.