Congratulations, you're now retired

Some sort of mandatory pension law will pass in the reasonably near future.

Old age-63 (photo credit: )
Old age-63
(photo credit: )
Some apparently good news, for a change: Last month the Histadrut signed a pension agreement with the Manufacturers Association of Israel. This agreement is a genuine ray of light for many workers who face the gloomy prospect of poverty in their old age. But, as always, the devil is in the details. There are grounds for suspicion. Why would the Manufacturers Association decide, of its own free will, to pay those workers who until now have not been entitled to employer-subsidized pension an extra 10%? Why are the manufacturers suddenly so eager to sign agreements with the Histadrut? The answer is not difficult to guess. Over the past few years the Knesset and government have been deliberating a mandatory pension law. Pension bills submitted by members of the opposition have been gradually gaining more and more serious attention from the government, including even mild encouragement from the Treasury folks. And after many trials and tribulations, it is now likely that some sort of mandatory pension law will pass in the reasonably near future. Now if the Knesset passes a pension bill, there are two potential losers. The first is the Histadrut, which would see yet another aspect of its mandate taken over by the state. The other potential loser are the employers, who will have to invest more in their workers. Given these potential losses, the Histadrut and the Manufacturers Association realized their common interests and struck a quick deal. I DON'T mind sinister motivations, as long as the final result is decent. But in this case, employers made sure to cut their losses, and the Histadrut, which is weak and struggling, made some heavy strategic concessions in order to stay in the game. The main problem with the new pension agreement is its extent. Workers are to pay 5% of their salary, and employers will add 10%. Given today's life expectancy and pension funds' profit accumulation rates, this is simply not enough to allow workers to maintain their standard of living when they retire (even when one adds National Insurance pension support and the reduction in living costs after retirement). A total investment of less than 17.5% of a salary - the customary rate in existing pension agreements - means that many workers will find themselves facing poverty when they retire. In fact, it is clear that even 17.5% won't be enough in the not so distant future. The new agreement does not only generate insufficient pension, it also discriminates between one half of Israeli workers, who enjoy the existing higher pensions, and the workers subject to this new agreement, who will get less than enough. On top of that, there's the risk of a "trickle-up" effect, which may undermine the higher existing pension agreements. BUT THAT'S not the worst problem. The agreement between the Histadrut and the Manufacturers Association also qualifies that pension allocations will be made only after nine months of employment. Yet today we are seeing entire industries, such as security and cleaning, where a "revolving door" throws workers out every every months to prevent them from accumulating benefits. The new pension agreement might aggravate this problem, meaning that many workers will lose several years of pension savings while they tarry through short-term and revolving-door jobs, ending up with insufficient pensions. The new agreement has further problems. Self-employed people (who, contrary to popular opinion, are mostly not the rich) are not covered. The wage that must be insured under the new agreement is the average salary in Israel - anything beyond that doesn't have to be insured, which means that 30% of workers will get only partial pensions. There's also the issue of regulation, and of insuring pension funds against bankruptcy. And those older workers who entered the pension game a little too late will see a not unsubstantial part of their meager salary struck off their pay slips for savings, while the amount they will receive after retirement, given their short savings period, will not justify the sacrifice. THAT THE Histadrut is back in the game is good. Israel is already a social gap "world leader" among developed economies. A strong trade union is the only thing that can prevent Israel's deterioration into third world-like disparities. But since the Histadrut is currently too weak to sign a good pension agreement, we must make sure that Knesset legislation closes the gap. If the discrepancy between the current agreement and a decent pension bill is not closed, we'll see more and more poor elderly people. And if the gap is not closed, the state - that is, the taxpayers - will have to spend more money on income support and on old age National Insurance pension payments. It's not only "their problem." It's everybody's problem. Among existing Knesset pension bills the most likely to pass is the one promoted by MK Zevulun Orlev (NU/NRP). This bill is better than the Histadrut-Manufacturers agreement, but it is still less than adequate. If we want to prevent increasing poverty among older people and reduce their dependence on their children and the state, we must make the development of a sustainable pension policy one of our most urgent and prominent concerns. The writer, a board member of the worker rights NGO Kav LaOved (Worker's Hotline), lectures at the Academic College of Tel Aviv-Jaffa.