The worldwide financial meltdown: 'A Guide to the Perplexed' in Israel

Finance Ministry answers the most pressing questions faced by long-term savers.

By SHARON WROBEL
bank fee biz 88 224 (photo credit: Ariel Jerozolimski)
bank fee biz 88 224
(photo credit: Ariel Jerozolimski)
The recent volatility of financial markets here and abroad, led by fears of a slowdown in growth and losses to pension and other savings vehicles, has created fear and confusion among the investor public. A small number of long-term savers here have already made panicked withdrawals. The Finance Ministry answered the most pressing questions faced by long-term savers. Does the current situation on global financial markets have an impact on my savings? The global market situation has an impact on your pension savings, since the bodies managing pension savings invest our saved money in the financial market, stocks, bonds and other financial instruments. The risk level changes and depends on the investment track chosen by the saver. How does volatility on the stock market affect my savings? Pension savings are long-term savings vehicles and need to be assessed over long periods of time. The impact of short-term volatility on the stock market is not necessarily critical for long-term savings. Therefore, it is not recommended to make decisions that have future impact on the basis of steep falls or rises on the stock market in one week or another. It is also recommended to consult a financial adviser or insurance broker to choose an appropriate savings track according to age, family status, health situation and economic status. Do I have to pay a penalty if I withdraw my money? Withdrawal of money from financial funds (pension funds, provident funds, keren hishtalmut) before the date of maturation is liable to a tax penalty of at least 35 percent of total savings in addition to other penalties determined by the money managing body. Add to this the loss of entitlement to an exemption from capital gains tax. Are pension funds or keren hishtalmut funds likely to collapse as a result of the financial crisis? There is no danger of provident funds collapsing due to the crisis. Provident funds are managed by the individual company as trust funds, which means that any debt obligations or collapse of the company will not put savings money at risk - by law these funds can not be confiscated or transferred. How does the collapse of foreign banks or companies affect my pension savings? Pension savings are invested in Israeli and foreign stocks. Today, about 10% of provident and pension funds assets are invested outside of Israel. According to an assessment by the Finance Ministry, the exposure of provident and pension fund assets to investment banks and other financial institutions abroad is very low. How can I find out where my provident fund is invested in? On the Finance Ministry's Web site, Gemel Net (gemelnet.mof.gov.il), the segmentation and distribution of specific funds can be viewed and followed on a monthly basis. The information of data is presented according to different investment segments (stocks, bonds, corporate bonds, government bonds and more), investments in Israel and abroad, and investments according to risk level among others. In addition, two months after each quarter, provident funds manager are obliged to publish on their Internet sites a report featuring a detailed list of assets in which the fund has invested.