General Collective Agreement Concerning the Increase of Allocation Rates Towards Pension Insurance
The collective agreement will come into effect on July 1, 2016 and its provisions are expected to be applied by extension order to all employees in Israel.
The collective agreement was signed pursuant to Amendment 12 to the Supervision of Pension Services Law (Compensation Funds) which came into effect on February 5, 2016. Amendment 12 sets new criteria relating to employer allocations to employee pension funds.
Uncertainty regarding the new criteria led to some confusion. The collective agreement was designed to delineate clear and agreed upon criteria for, among other things, matters relating to the increased allocation and contributions rates to the various employee funds.
The collective agreement establishes that the percentage rates to be allocated by employers to their employees’ pension funds, on the one hand, and the employee contributions made to these funds as deductions from their salaries, on the other, will increase as follows:
Employer Allocation as a pension component:
As of July 1, 2016: 6.25% of salary
As of January 1, 2017: 6.5% of salary
Employee Contribution for the pension component (as deduction from salary):
As of July 1, 2016: 5.75% of salary
As of January 1, 2017: 6% of salary
The collective agreement also establishes that the increased employer allocations to remuneration funds (“Kupot Gemel”) that are not pension funds (i.e. remuneration funds in which the inability to work component is purchased by the employer separately and not as part of the pension insurance) will include employer payments towards inability to work insurance at the rate required to insure 75% of an employee’s salary.
It was also ruled that in any event, the pension component alone of an employer’s allocation rates (separate from the inability to work component) will not be less than 5% and in the event that it will be necessary to increase the costs of the inability to work component, the aggregate cost to the employer for purchasing the inability to work component together with the allocations towards the pension component, will not, in any event, be greater than 7.5% of salary.
In other words, according to the collective agreement, the employer will increase allocations to its employees for the pension component, while also being obligated to allocate at least 5% of salary to the pension component, with total costs for the pension component and the inability to work component not being greater than 7.5% of salary.
As for the severance component, the collective agreement establishes that the employer is obligated to make allocations to its employee of at least 6% of salary (these are the current minimum allocation rates (which can be up to 8.33%)).
In addition, concerning new employees, the collective agreement provides that employers will be allowed to match the allocation rates for the severance component applied in the workplace among the various remuneration funds, so long as the allocation rates for an employee that has an existing pension insurance policy is not harmed.
The collective agreement also establishes that the parties to the agreement shall apply to the Ministry of Economy and Industry so that the arrangement pursuant to Section 14 of the Severance Payment Law-1963, which allows employers and employees to allocate on a monthly basis towards severance payments, be adjusted to comply with the terms of the collective agreement.
For further information please feel free to contact:
+972.3. 6069656 steken @ fbclawyers.com Adv. Shay Teken
+972.3. 6069656 mfriedman @ fbclawyers.com Adv. Moran Friedman
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