Pension Safety Net / Big Pie, Small Slices

Finance Ministry officials are pleased with their victory over Histadrut chairman Ofer Eini. (See full coverage in TheMarker, page 12.)

"Eini wanted a [safety] net that would also cover the wealthy workers, and which would have cost NIS 40 billion immediately," said one. "Our net will apparently not cost anything."

That is because the treasury's safety net for pension savings was designed to cover a lot of people, but to give them very little. So little, in fact, that the treasury can hope it will never need to pay out at all.

The key is that the treasury's plan protects only the real value of the principal as of November 30: It does not guarantee any interest at all. But what are the chances that a person who retires in 10 years - the plan's outer limit - will have less in his pension fund than he does today? Very small, given how low stock and bond prices currently are.

As a result, the state could afford to be generous with regard to whom the plan will cover: anyone whose pension savings do not exceed NIS 1.5 million, which translates into a monthly pension equal to about the average wage. That encompasses about 80 percent of all savers.

With some 34,000 people retiring every year, of whom 80 percent will be covered, and the safety net being offered to all those aged 57 to 67, altogether, the plan will cover about 250,000 people.

But - and this is a big but - their savings are protected only up to a ceiling of NIS 750,000, which provides a monthly pension equal to the minimum wage. In other words, only part of their savings are protected. Moreover, if someone has a budgetary pension or belongs to one of the veteran funds, his pension from this source will be deducted from the safety net's coverage, as these plans already offer a guaranteed return.

No one really knows how much the plan will cost. But the treasury believes that if it is used at all, it will cost no more than NIS 12-15 billion, and even that starting only in three years' time. If so, this is an affordable sum. But whether it will also achieve its purpose - namely, calming the public's fears - still remains to be seen.