Finance Minister Avraham Hirchson said Thursday he expects his proposal for a mandatory pension plan to be passed into law this year and gave businesses until the end of 2008 to negotiate voluntary pension agreements with their workers.
"In the current situation, most low-earning workers don't have a pension savings, which makes it likely they will live below the poverty line when they reach pension age," Hirchson said. "The proposal to obligate pension benefits for all workers will significantly reduce the number of elderly with no income."
Hirchson gave more details about the proposed pension program he announced earlier this week as part of the Treasury's reforms to encourage work participation and reduce social gaps. He presented the plan, which also proposes the introduction of negative income taxes and car leasing reforms, to the government Thursday to be discussed in Sunday's cabinet meeting,
By way of example and as a guideline, the finance ministry said employees should set aside 5.5 percent of their salary for pension, while employers would provide 6% for severance pay and another 6% for pension, setting the savings period at 37 years out of a potential 47-year working life. The investments should have a net yield of 3.74%. The pension funds should include death and disability insurance coverage, the ministry said.
Hirchson said he expects to have all workers under a pension scheme by 2010, which he stressed the Finance Ministry would intervene to enforce if next year's deadline is not met.
Such a government intervention came under fire from some quarters in the private sector, however, which remain skeptical about the benefits of the program.
"What tends to happen is that the government gets too involved in the way people handle their affairs and it usually ends up being to the detriment to the man on the street," said financial adviser Douglas Goldstein, president of Profile Investment Services. "I like the idea of everyone having a pension plan, but when they use the word mandatory pension plan it implies that the government is going to try to create a huge amount of bureaucracy to force the private sector to do things rather inefficiently."
Goldstein said he would prefer to see the government give tax incentives to people to manage their own retirement savings, adding that the proposed system would work to the detriment of the small business owner who will now have the added burden of managing pension plans.
"I think they are saying the right things but they are not going to do the right thing," he said. "It's wrong to force companies to be responsible for people. Each should be encouraged to take care of themselves."