Caring for old age is the duty of every working citizen of Israel. Private entrepreneurs are no exception to this rule. But if earlier such concern for pension savings of this category of citizens was completely their own responsibility, now the situation has changed radically.
As of January 1, 2017, a new pension reform has come into force in Israel, the main feature of which is compulsory deductions to pension contributions for private sector entrepreneurs. Let’s try to understand what the peculiarity of this reform is, and who will be obliged to pay such contributions.
What does the new law require from a person engaged in business?
Beginning on the first of January, every private entrepreneur, aged 21 to 55 years, is required to pay a certain amount per month to Keren Pensiya (an analogue of a pension fund) or a special insurance policy (Tagmulam le Atsmai). This is done primarily for the social protection of private entrepreneurs and preparation for painless retirement or to assist them in a difficult period of temporary unemployment.
How much should be paid?
If you receive an average monthly income of up to NIS 4,772, this amount will be 4.5%.
For subsequent earnings amounting up to 9,543 shekels per month, payments will be equal to 12.55%.
The amounts of monthly income above this ceiling value do not require additional deductions. But it is important to understand that all private entrepreneurs who deduct 16% of their total income in the amount of 17,400 shekels have substantial tax benefits that will by far pay off such investments.
What categories of citizens are exempt from such payments?
All private entrepreneurs with less than half a year passed from the moment of registration of their business.
Persons exceeding the retirement age.
People under the age of 21.
Private entrepreneurs who started their own business at the age of over 60 years.
How to choose the right pension program?
When choosing a pension program, it is necessary to take into account already existing insurance policies, age, current financial savings and many other factors. You can also use existing program options. The only condition is that they should have the tax status of the Tagmulam le atsmai. The best way to find the right pension program will be to seek help from experienced professionals. For example, the company “Shmuel Brodetski Rohe Heshbon".
Is there a penalty for failure to pay pension contribution?
Yes, in case of failure to pay the contribution during 12 months, a special warning for a period of 90 days will be sent to the address specified in the annual report. After that, a fine of 500 shekels is imposed on the defaulter, and this amount will be indexed on January 1 of each following year.
How to receive your savings?
After reaching the age of 60 years, in the form of lifetime pension payments.
As an unemployment benefit in the event of the closure of a business that is the main source of income. But in this case you can get only a certain percentage of the deposited amount.
Are there any changes in the order and amount of payments to the Bituach Leumi in connection with the new law?
Yes, now small monthly incomes are subject to a lower rate of deductions to this body (from the amount up to 5,804 shekels a month it is necessary to pay only 2.87% instead of the previous 6.73%). For holders of incomes from a private enterprise that exceed the minimum wages in Israel, on the contrary, deductions have grown. If earlier it was necessary to pay to the Bituach Leumi only 11.2% per month from amounts above 5,679 shekels, now it is 12.83%.
As can be seen from the above, new changes in legislation make pension contributions a mandatory line of expenditures for any entrepreneur. And it’s not bad, because in this way he can take care of insuring his future. For more detailed advisory support on pension deductions and conducting business activity, you can always contact the company “Shmuel Brodetsky Rohe Heshbon."
