Guide for the perplexed

As director of retirement planning at Bank Hapoalim, Miri Nahmani meets many clients who are not aware of their retirement rights and tax benefits.

MIRI NAHMANI (pictured), says, ‘Any stoppage of work is a tax event that requires special reporting and organization.’ (photo credit: ARIEL BSOR)
MIRI NAHMANI (pictured), says, ‘Any stoppage of work is a tax event that requires special reporting and organization.’
(photo credit: ARIEL BSOR)
‘Every day we encounter individuals who have reached benefit age but are not aware of the rights and benefits that they are entitled to at this stage of their lives,” says Miri Nahmani, director of retirement planning at Bank Hapoalim. “When those people meet with us, they feel that they have finally come to the right place.”
After 30 years at Bank Hapoalim in the field of pension consulting, Nahmani recently launched the National Pension Consulting and Retirement Planning Center at the Sasson Hugi Tower in the Diamond Exchange complex in Ramat Gan. Nahmani says that unfamiliarity with the term “retirement planning” does not distinguish between managers and junior employees. “People in positions of authority come to us feeling helpless,” she says. “One of them, a manager at a large company, said to me, ‘I am an expert in my field, but when it comes to the subject of pension rights, I feel the ground fall out from under my feet.”
The Jerusalem Post spoke with Nahmani.
What is ‘benefit age’?
Benefit age is the retirement age according to the law [for a woman, 62; for a man, 67] or the age at which the employee begins to receive a pension, whichever is later. In other words, two conditions must be met: reaching retirement age and receiving a monthly pension. For example, a 62-year-old woman who continues to work and has not begun to receive her pension is not at the benefit age.
And what is the monthly allowance?
This refers to a pension for life, paid, for example, from a pension fund and/or a managers’ insurance plan. This payment is taxable income, almost like regular employment income. However, many investors are not aware that tax exemptions can be applied to part of the amount.
Please give an example.
A retiree who is entitled to a gross pension of NIS 10,000 can take a tax exemption of up to NIS 4,155 (49% of the ‘qualifying ceiling’ of NIS 8,480 in 2019), and the balance of NIS 5,845 will be taxable. However, if the retiree took full advantage of the benefits he was entitled to from his employer, he would receive a monthly tax-exempt pension of NIS 1,187, which would gradually increase until 2025.
How does one calculate how much of the exemption for compensation was saved by the retiree and how much is left to use for the monthly pension?
This is calculated using the offset formula which came into effect in January 2012. The formula calculates a concept called ‘tax-free capital,’ which currently stands at NIS 747,936, from which it is possible to receive an exemption on the monthly pension or the tax-exempt dividends on the pension. This takes into consideration the number of exemptions for severance pay the retiree used during his years of employment. 
The Income Tax Department examines the use of an exemption on compensation 32 years prior to the benefit age. Since we are in a transition period between this new formula and the old one, it is important to examine the year that the retiree reached the age of eligibility, if he utilized tax exemptions on compensation before January 2012, and when he utilized the exemption on compensation. The calculation of the exemption will be carried out according to the relevant formula for retirement, or in certain cases, according to the formula that yields greater results. The offset formula is usually preferable, though we check and compare both in any event.
Who is the target audience for the National Center for Retirement Planning?
Primarily, we are targeting employees who take early retirement or retire at the standard retirement age. Our audience also includes workers who are between jobs or are no longer working due to dismissals and so forth. The common denominator is that in terms of the income tax, any termination of work – retirement, voluntary or not – is a taxable event that requires reporting and planning.
What do you mean by ‘planning’?
Both retiring employees and employers are obligated to report income tax on severance pay and/or grant funds. It is important that the retiree understands the tax rules applicable to these funds. In addition, at the benefit age, the employee/retiree is required to fill out annuity form No. 161-4, in which he requests an exemption on pension money if it is exempt from the current pension and/or exemption from pension dividends.  
What advice would you give an employee who has reached benefit age?
Employees should examine their entitlements to tax exemption for their pension because they may be paying full tax without the exemption to which they are entitled. Consultation with a pension consultant who is expert in retirement law is critical. Many of the decisions are irreversible and can greatly affect the retirement years.

The bank is not a tax adviser. The above constitutes information and general explanation only, which does not constitute pension advice, investment advice or tax advice, nor is it a substitute for personal advice provided subject to the provisions of the law.