Treasury, Self-employed in Deal to Expand Pension Rights

The Israel Association for the Self-Employed (Lahav) is negotiating with the Finance Ministry's Insurance Commissioner to transfer a significant portion of over 400,000 self-employed pension savings from bank provident funds to pension funds. The move could translate into a loss of hundreds of millions of shekels in pension assets for the banks.

For years, self-employed workers directed their pension savings to the banks' provident funds, even though they could choose between the two. Lahav President Zeev Wiener said the phenomenon developed since banks required the workers to deposit their money in provident funds in order to receive credit lines on their business bank accounts.

As a result, unlike salaried workers, the self-employed did not have the option to split their savings between provident and pension funds. These limitations led to a situation in which 90 percent of the 418,000 self-employed had no pension, which provides upon retirement a monthly stipend rather than a lump sum, as provident funds do when they mature.

Current negotiations are aimed at allowing self-employed individuals to enjoy the benefits of both savings plans as well as to increase their recognized pension deduction to 18.3 percent, which is in line with salaried workers.

Wiener estimates that the new arrangement will take effect in early 2005, when the self-employed will be able to divide their pension savings. In addition, they will be able to redirect money already in provident funds to pension funds.

"Negotiations are in advanced stages," Wiener said. "We ran a survey revealing that 50 percent of the self-employed want a pension. The Finance Ministry loves the idea that they will divert more funds into pension plans," he added.

At the same time, the change will be a blow to the banking sector, which currently controls 90 percent of self-employed pension savings.

According to Finanace Ministry statistics, provident fund assets totaled NIS 116 billion in 2003, NIS 73 billion of which came from the self-employed. The rate of liquid funds among the self-employed is very high, standing at 65 percent, as opposed to 20 percent others. As a result, they could end up transfering hundreds of millions of shekels from the banks, even though Lahav is finding it difficult to estimate the total at this stage.