Treasury submits new 'safety net' plan

Proposed economic stimulus plan will only protect those aged 60 and above, won't be retroactive.

Bar-On 248.88 (photo credit: Ariel Jerozolimski)
Bar-On 248.88
(photo credit: Ariel Jerozolimski)
Bowing to public pressure, the Finance Ministry and the Bank of Israel have advanced the approval of a plan to boost investment in the capital market, including a limited pension safety net, as the Histadrut Labor Federation on Sunday declared a work dispute in the public sector. "The last thing we want is a general strike," said Histadrut chairman Ofer Eini. "For months we have urged the Finance Ministry to provide a broad safety net for pension savings and deal with the problem of layoffs. Unfortunately the finance minister has pushed us into a corner, forcing us to declare a work dispute." The Histadrut met on Sunday to declare the work dispute, which will officially go into effect on Tuesday following approval by the labor federation's management. By law, the Histadrut can call a strike within two weeks of a dispute being formalized. As political and public pressure intensified, the Finance Ministry on Sunday passed on a financial package proposal to Attorney-General Menahem Mazuz for approval. During the period before elections, the ministry needs Mazuz to rule on whether the plan involves "election economics." The package is expected to include the provision of a limited pension safety net for people nearing retirement age - 60 and above. The provision will not be universal, but based on an income test. On Sunday morning, Labor Party chairman Ehud Barak harshly criticized the economic policies of Kadima and the reforms endorsed by Likud chairman Binyamin Netanyahu. "There is a global crisis, but unfortunately the crisis also has its roots at home. We all recall Netanyahu's irresponsible policy of transferring pensions to the capital market. Now we are following the stuttering and continued hesitation of Kadima and its finance minister in dealing with the crisis, and only now as we are already getting wet have they recommended putting up a plan which anyway is too little, too late," said Barak. "We must not let people lose their pensions and savings, which they have been accumulating all their lives, and [must] immediately introduce an economic plan that includes a safety net for pension and provident funds." The hesitation within the Treasury and the Bank of Israel to roll out a full financial package has stemmed from the concern that the plan might not pull Israel out of the crisis and that the decision-makers of today would be the victims of a commission of inquiry in the future should the financial stimulus plan fail to achieve its goals. Speaking at the Bank Leumi pension advice conference in Tel Aviv on Sunday, Finance Ministry Supervisor of Capital Markets, Savings and Insurance Yadin Antebi said the public could not expect magic solutions for rescuing its savings. "Everyone is talking about a pension safety net like a populist slogan, but no one knows exactly what the safety net would consist of. There is not one paper on how much it will cost and who is going to pay for it. The budget cost could be devastating. There is no magic solution that can solve such global problems," said Antebi. "The belief among the public that pension savings have lost 50 or 60 percent of their value are completely exaggerated and blown out of proportion. Since the beginning of the year until October, pension funds have lost 9.5% of their value, and provident funds 16%. In comparison, pension funds in OECD countries have lost on average 22% of their value." Antebi added that although the value of pension funds has been eroding since the beginning of the year, they have still generated a 6.2% annual gain over the past decade. "Since the beginning of the global financial crisis, we have been seeing an increase in the volume of withdrawals of provident funds, but the numbers are still relatively solid for a crisis of this magnitude," said Antebi. "Before the outbreak of the crisis, the volume of withdrawals amounted to NIS 100 million a day. In mid-September, withdrawals jumped to NIS 200m. a day. They have been coming down since, but over the past week they have gone back up again." Also speaking at the pension advice conference, Bank Leumi CEO Galia Maor blasted the Finance Ministry's inactivity in proposing a safety net for pension savings. "Following the deterioration of the US market and the developments in the Israeli economy and market, it is clear to everyone that a high level of long-term savings is a necessity and of great importance both at the macroeconomic and the social or individual level," said Maor. "In recent months, long-term savers have suffered sharp losses because of the plunge in capital markets. This government and every government should support and encourage savings, and in particular long-term savings." Looking ahead to the economic situation, Maor said that 2009 would be a recession year for most leading economies around the world, a year of heightened unemployment, a year of financially troubled households and a year of bankrupt companies. "For the Israeli economy we predict 2% GDP growth in 2009 and a large rise in unemployment," said Maor. Furthermore, Maor criticized the lack of proper supervision and regulation of the non-banking sector. "There needs to be strict supervision with a focus on risk management on institutions that manage other people's money," said Maor.