8 - The Reforms in the Israeli Pension System 1995‒2015

Summary

This chapter describes the revolution in pension saving during the past two decades, which included the closing of the old pension funds to new members in 1995, the shift from defined benefit pensions to defined contribution pensions and finally the Mandatory Pension Law of 2008. It discusses both the macro-effect of the reforms and their micro-effect. On the macro level, the reforms transformed long-term pension saving into the main component of saving, in terms of both net deposits and assets. On the micro level, a comparison of the 70+ and 50–60 age groups during the last two decades shows that the older group has not experienced a drop in its standard of living and has not suffered from greater income inequality relative to the younger group, although this conclusion may be premature. Finally, the reforms have played a major role in revolutionizing the capital market by reducing the reliance on subsidized government bonds, increasing competition in the pension sector and opening the capital market to global capital flows.