A retired couple.
Dependence of the monthly allowance on the capital markets may cause damage of hundreds of shekels per month (Photo: ShutterStock)
Yosef Sezna retired in 2019 at the age of 71 after having worked since 1997 in housing and construction companies and Solel Bona.
He signed an employment contract under which he received the coveted status symbol "executive insurance", knowing that upon retirement he would be able to withdraw the amount of money he had accumulated and take care of himself.
However, in 2002, the guidelines changed and the managers' insurance at the time of retirement became just like a pension fund, with one significant asterisk that changed, and many others like him did not know.
The coveted executive insurance is a bit of a cat in the bag, for those whose pension today is entirely affected by the fluctuations in the capital market - and those who did not receive a high salary and did not accumulate assets for old age, today pay a heavy price like Sezana.
The year 2022 was one of the most difficult years for the capital market, and some would even say "Yom Kippur" for the insurance companies that lost hundreds of millions of shekels, the first quarter of 2023 did not bring a recovery either (although the containment of inflation in the US brought back a little color to the investors' lives).
Because of the performance of the capital market in 2022, the pension allowance of hundreds of thousands of people has decreased by 5% for those who receive a pension through a pension fund, and between 10-15% for those who receive their pension through the managers' insurance.
The capital market does affect the pension of all of us in the long term, but retirees who hold executive insurance experience the crisis every month, from which it is currently not clear how long the recovery from it will take.
Yosef Sezna.
He retired and discovered that his managers' insurance had suffered a serious injury (photo: Private)
"When we talk about pensions, we talk about saving in two periods of time. One, during our productive lives, and the other when we decided to retire and then we have to realize what we saved in the form of a fixed pension" explains Itzik Ben Aroya, a pension consultant and founder of the Aroya platform: "The problem we are facing
today
focuses In those who have already started receiving their pension. Not those with the old pension funds, these are those who receive their pension through executive insurance."
In other words, you are saying that there are lucky retirees, and there are those whose pensions are significantly damaged by the economic crisis
"Those who have the old pension funds, their pension is linked to the index and is updated once a year, where if there is a decrease, it is updated the following year, in order to align and they are less affected by the fluctuations in the capital market. I want to talk about two other populations, about the one who retired and saved All her life in a new pension fund (starting in the mid-nineties) and those who chose to save all their lives in executive insurance policies. Once you started receiving a pension, what happens to your monthly pension in relation to the capital market? Are there any differences? The answer is yes, and significant."
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Itzik Ben Aroya, pension consultant and founder of the Aroya platform (photo: Private)
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Until 1990, says Ben Aroya, the state gave a guaranteed return to the policies of the 1980s.
"The pensioners have since been happy and are not part of the equation."
But those who hold the managers' insurance policies from 1991 until today, feel it well in their pocket.
"The old-age pension that a retiree receives from an executive insurance policy changes month by month according to the fluctuations in the capital market. Meaning, it can go down, and it can also go up. The capital market usually goes up, except for a few fluctuations in 1994, 2002, 2008, and 2022."
And we are in a period of fluctuations
"therefore those who receive their pension from executive insurance lose money every month, the pension increases or decreases according to the change in the rate of return made by the insurance company".
Yosef Sezna feels the fluctuations well in his pocket.
"When I retired in 2019, I started receiving a monthly payment of 4,400 shekels and today I have to survive on only 3,900 shekels."
At the age of 74, after retiring at the age of 71 from his job,
"My plan was to withdraw all the money and buy an apartment that would have given me income options today, but the penalty of paying 35% tax discouraged me. I didn't take the step and today, since my pension is received from managers' insurance, I receive a very low amount and I don't know where it goes anymore Arrive".
As mentioned, 2022 was a very bad year in the capital market, "I can tell you categorically that all the pensioners took the hit," says Ben Aroya, "those who receive their pension from executive insurance experience swings month after month. They are not always aware of the reasons for this, because they do not bring For your information, the meaning of executive insurance is that in good years the amount will increase and in less good years the amount may decrease significantly."
If the crisis hits everyone, what happens to those who receive an old age pension from a pension fund?
"Not all of their money is linked to the capital market. That is, in executive insurance, there is no safety net and no guaranteed return. In the pension fund, the state guarantees savers in the fund that 60% of their pension is under a safety net, that their money, at least in part, receives designated bonds and in simple consumer Hebrew - return Guaranteed. What is affected by the capital market? Only 40% and not monthly but only once a year."
There are no magic solutions.
That's why every savings channel for retirement must be customized (Photo: ShutterStock)
Recalculate route
Is this something irreversible - and once you've retired and didn't change course before retirement, you basically have nothing to do?
"Exactly. That's why I urge everyone who is facing retirement to do this test, and first understand where they get an old age pension from. Most people, you'll probably be surprised to hear, don't even know or understand all the meanings."
Ben Aroya wishes to emphasize that despite the crisis and the erosion of the pension amounts received by those who are insured with executive insurance, there is no "good" or "bad" here, but as with everything, pros and cons and the bottom line is that a personal adjustment is required for each insured person.
Is it possible that you would recommend to someone, despite the risks involved, to receive the pension benefit through the managers' insurance?
"If you are about to retire, go see someone who will advise you and show you first of all the differences between a pension from an executive insurance policy and a pension from a pension fund. There are, of course, different variables of pension paths, of management fees, of the level of the coefficient. And other technical variables that are not the place List them. But for example, personal characteristics are a significant factor, what is the retiree's medical condition, what is his personal condition, his financial condition, is he married or not, does he have children?"
Executive insurance is always seen as a status symbol.
Is this crisis something new?
"It's not new. It's been known for many years. Managers' insurance is the biggest marketing slogan of the twentieth century, "I'm a manager", but you have to look at the conditions, and people while they're working don't do that, out of lack of knowledge or lack of awareness. They sold it by the wrap The pink cellophane inside was actually a rat."
From your experience, are we in a worse situation than we were in the crisis of 2008?
"Look, towards the middle of the end of 2008 we experienced a crisis and it's over. Most of the funds started to repair the damage already at the beginning of 2009. We are already at the end of the first quarter of 2023 and it still looks bad. 2023 still does not fix, so we are in a problem. But we don't know yet What lies ahead. We don't know, but does the retiree have anything to do with it? Not anymore. Those who have retired cannot change their retirement plan. I can only tell you who is living more today, right now? Only those who retire with the pension fund."
Not long ago it was announced that close to 100 billion had already been cut from public savings
"Just don't get confused. The one who lost money is all of us. Because we all save in a pension or executive insurance, but this figure speaks of the savers and not of the pensioner who already receives a pension, and here too it should be said that in the pension fund we are talking about savings, some of which have a state safety net. which does not exist in the policy. And this is the part that people are not aware of where they save and where they receive a pension, and how it is or is not affected by the capital market."
Isn't there a bit of unfairness here towards those who saved on executive insurance?
"This is true, and I raise the question why the state does not guarantee a safety net for those who retire and have an executive insurance policy? Why is the safety net only for the pension fund. This is a question. Perhaps the state should give its opinion that what is before our eyes here is not the product, but the pensioner. Why not protect a person who retires? Give him money protection at least at the age of 67, I'm not saying to do it for a saver at the age of 30. Why punish those who retired with executive insurance. And this is a question of consumer values. There is discrimination here because of a choice someone made."
Provident funds are a completely different story, but I guess some people would like to know what's going on there too?
"Provident funds are affected by the capital market, and they also do not have a safety net. The state prefers to give the safety net to the pension fund. There are not many regular savers in a provident fund, and as mentioned, it does not have a safety net, but did any of us cry at traffic lights in 2021 when we earned tens of percent? 38% More precisely? No one."
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