By Dov Pelleg
Former Chairman of the Social Security Department of the Histadrut (Israeli Labor Union)
All the developed countries and some developing countries began a process of reform in their pension systems in recent years, as long-term projections till 2050 and beyond showed a risk of total bankruptcy of these systems, as well as possibly entire fiscal systems and national economies, due mainly to the ageing of populations –that is, an increase in longevity and decrease in fertility. In Israel this demographic process is less enduring but is also taking place.
The main measures to alleviate the pressure on the pension systems are to increase social security contributions and delay retirement age; however, many minor measures are also possible. There is a risk that unbalanced reforms may harm the elderly population that the pension system is designed to protect, and lead to an increase in poverty among this population group.
Two major reforms of the pension system have been undertaken in Israel: the first in 1995, discussed briefly in this article, and the second in 2002-2005, analyzed at length. The second reform used two main measures for change-increase in contributions and the postponement of retirement age. However, since the change was 15 years late, a large actuarial deficit developed. The government used many other elements of reform, reviewed in this article, which lowered pension rights too much, considering the aims of the system. Most importantly, again no decision was reached regarding compulsory insurance for pension.