Until 2008, there was no general obligation in the market to make contributions by the employer to the pension of its employees, and such contributions were made either on a voluntary basis or according to special collective bargaining agreements or those applicable to specific branches. As from that year, there has been a change in the law, and all employers on the market are required to make contributions into provident funds as savings for their employees' pension funds. This is the States' way of encouraging employees to make long term savings, by means of a mechanism in which provident funds manage the employees' monies. Contributions are made into the funds by the employee from part of his salary, and the employer tops up an additional portion. As at 2014 the contributions required to be made by law stood at an amount of 17.5% of the employee's salary (excluding the public sector).
On July 1, 2016 a new collective agreement will enter into force on the market. This collective agreement was signed between the presidents of the employers' organization and the new general employees' organization (the new Histadrut), and in respect of which the Minister of the Economy (the Prime Minister) has signed an extension order. This collective agreement increases the rates of contribution to 18.5%, in two instalments as indicated below:
As from 1.7.2016 – the employer's contribution will increase to 6.25% of the employee's salary; the deduction from the employee towards the benefits will increase to 5.75% of the employee's salary.
As from 1.1.2017 – the employer's contribution will increase to 6.5% of the employee's salary; the deduction from the employee towards the benefits will increase to 6% of the employee's salary.
It should be pointed out that the collective agreement applies to all salaried employees throughout the market without reference to their working hours or to whether they are unionized or not. This increase is not relevant to those in respect of whom the contributions have already been made at a rate of 18.5%. With respect to new employees, it is necessary to act according to the instructions on the commencement of the contributions to pension which appear in the relevant employment agreement.
Reference: The Supervision of Financial Services (Provident Funds) (Amendment No. 16) Law, 5776-2016
