The National Insurance Institute, which is in charge of the country’s social and welfare policies and provides financial support to weaker segments of the population and families in distress, has accused the Finance Ministry and the government of cheating the public out of funds that are rightfully theirs, in a story first reported by Channel 10 news.
The government is diverting the NII’s surplus of contributions into the general budget instead of leaving them to accumulate, as intended by the Social Insurance law, to guarantee the NII’s sustainability in the long term, said Orna Angel, the newly appointed chairman of the NII’s Audit Committee and a member of its Finance Committee.
In a phone interview with The Times of Israel, Angel said that the government has used up more than NIS 200 billion ($57.4 billion) of funds that have been accumulated over the years by the NII as insurance reserves, meant to be paid back eventually to citizens who have paid their national insurance dues over the years.
By law, NII benefits are financed by mandatory national insurance contributions collected from all Israeli residents, who in turn are guaranteed support in their time of need: unemployment, illness, disability, maternity leave, bankruptcy of corporations, retirement.
As all other insurance companies do, the NII charges the population more than it anticipates paying out, to make sure it has reserves for an aging population and for emergencies. These extra funds are a defined percentage of liquid assets that the insurer must have on hand to satisfy all claims. It is these reserves that the Israeli government has tapped into since 1980, Angel said.
“There are reserves of more than NIS 200 billion that have been accumulated in the NII since it was set up in 1954,” said Angel. “But this money has been taken and used by the government for general purposes. The government is taking this money and using it without giving anyone information about what it is doing with these funds and without a transparent process.”
Using insurance funds as tax revenues
In 1980 the Finance Ministry and the NII signed an agreement which allowed the ministry to tap into its reserve funds and use them for so-called “constructive investments,” Angel explained. A truly constructive investment should produce high yields that accrue to the benefit of the insurance reserves, she said. Instead, the government is making use of these funds as if they were tax revenues.
“This money is not taxes; it is insurance payments that are due to the population,” Angel said. “In the eyes of the government, there is no difference between taxes and insurance. But there is a significant difference between taxes and insurance payments. You pay insurance money to accumulate rights to these funds in the future. In contrast, taxes are used by the government for current expenditures, according to the government’s short-term priorities. However, insurance payments are long-term provisions for the citizens’ future basic needs.”
“They are expropriating the money we pay into the NII,” she said, in a way “that we might never actually get back. And because it is using these reserves, the government is creating all kinds of laws, of which we were not told in advance, to prevent us from getting what we are entitled to, because they know there is no money there.”
One way the Finance Ministry accomplishes this is through legally mandated “means tests” that exclude most of the insured from eligibility for NII payments, despite having paid their contributions regularly. “These means tests are very often quite restrictive and even geared toward excluding people from the middle class from benefits,” she said.
Withholding basic social rights
The National Insurance law says people need to pay into the NII, entitling them to benefits in case of need — for example, long-term care if they become unable to function on their own. “But now that is not the case,” she said. “And no one has come out and said that is not the case. Since 1980 the government has been withholding basic social rights from the population.”
“And so, you have a whole county feeling that the NII is not looking after them — but it is not the NII, it is the state, the government that is not looking after” the people, she said.
“Clearly, they are not paying people what they are due. They are making it harder to access these funds and inventing laws that are not insurance laws. So, when we get old we will be poor.”
That is why people often get paid under the table and don’t declare their income, to make ends meet, she said.
Angel said that for 2018 the institute had wanted to set up a program to ensure that citizens are made aware of all of their NII rights. “People don’t know that they are eligible to funds, and they don’t know they can appeal against NII decisions. The new program we want to set up would have made them familiar with rights. It would have required some NIS 11 million, but the Finance Ministry did not approve the program.”
The Finance Ministry said in response, in an emailed statement:
“In 2017, the National Insurance Institute paid NIS 67 billion in annuity payments, while income from the collection of National Insurance contributions was NIS 41 billion. In fact, collection money is insufficient to cover the institution’s obligations already today. Moreover, the National Insurance Institute is in an actuarial deficit and is expected to reach insolvency in 2045. Therefore, in order to maintain the stability of the institution, the state participates in the institution’s payments of about NIS 28 billion a year. These transfers enable the institution to maintain a surplus in its current budget, to continue to increase the National Insurance Fund, and to increase the financial stability of the institution.
“It is important to note that the National Insurance Fund, which has some NIS 200 billion, is registered with the State Treasury, and each year NIS 20 billion is transferred to the institution for payments in respect of profits and bonds paid. The Finance Ministry has stood and will continue to abide by all of its obligations to the NII.”