Mark, a 61-year-old certified Israeli tour guide, until recently had a packed schedule of travel with families and groups of tourists around the country, showing them the history and beauty of the land of milk and honey.
But when the coronavirus struck, it upended the plans of millions of travelers worldwide, as well as sending workers home and households into shelter-in-place mode.
“Before the coronavirus, I had monthly commitments of 15-20 days per month, a little more in some months, which is the optimum monthly guiding capacity for a guide,” he said in a phone interview from his home in a town in the central district of Israel.
“Now, for the next two months, I have zero work, and I don’t know yet when this is going to turn around,” he said. “I’m not even sure that groups that are booked for the summer of 2020 and beyond will come as planned. People may be short of money and priorities may change, there may still be travel restrictions imposed by certain countries and some will be still worried about a renewed flare-up of the virus.
“We all hope to get back to normal, but this is going to be a ‘new normal’ and not back to where we were before.”
Mark has applied for benefits that the government has promised to pay out to self-employed people in this time of need. He doesn’t know how much he will receive, but whatever it is, “it cannot cover the lost income. Also, the aid will not be forever, only for a few months at most.”
Before becoming a self-employed guide three years ago, Mark was a salaried worker receiving benefits, including a savings fund and pension plan. He continued paying into these plans once he became self-employed, but if the situation persists for a long period of time he may not be able to continue doing so.
What’s more, his concern, as retirement looms, is how the stock market plunge has already affected the pension fund he has contributed to over the years. In Israel, the retirement age for men is 67.
“Is there sufficient time for the pension fund to recoup the losses before I will need to use it?” he asked.
Preliminary market figures estimate that in March long-term saving instruments — including provident funds, insurance and pension plans, and advanced study funds — have witnessed some of the biggest monthly losses ever, with stock markets in Israel and the world roiling as the coronavirus has spread like wildfire and the price of oil has plunged, triggering losses of trillions of dollars on the exchanges. Many these saving funds are invested to a greater or lesser degree in the stock markets. So, investors big and small have seen their pensions and savings shrink.
“It has been an unprecedented month – we have never seen anything like this,” said Yaniv Pagot, an economist and the former head of strategy at the Ayalon Group, an institutional investor. “Returns on savings funds, provident funds and the shorter-term advanced education funds have seen an almost double-digit value drop.”
A provident fund is a long-term savings instrument that allows individuals to save money for retirement through monthly or annual payments, and enjoy tax benefits. The money accrued in the fund is managed by investment houses and investment managers, with the aim of collecting returns on the money invested over the years and hopefully increase your savings.
The funds can be invested in a variety of investment options that vary in risk levels depending on inclination, age and needs of the saver.
The advanced study fund, also called an education fund — or, in Hebrew, keren hishtalmut — is Israel’s only short-term, tax-free savings plan. The fund allows investors to withdraw money accumulated after six years without paying a capital gains tax. If money is withdrawn before the end of the six years, the fund owners are liable to tax penalties.
Pension funds accumulate tax-free until retirement age. All Israeli employers by law are required to set up pensions for their employees. Upon retirement, taxpayers normally receive a fixed monthly pension, which is set by dividing the principal balance in the pension — or what is left of it — according to a certain formula.
Equity markets throughout the world and in Tel Aviv plunged sharply by 10-20% in the first four weeks of March 2020, and both the short- and long-term investment instruments in which public funds are invested – such as ETFs and mutual funds, and provident funds and training funds, “suffered heavy losses,” according to a report by the research department of the Tel Aviv Stock Exchange published on Tuesday.
The blue-chip TA-35 index plunged by some 20% in the first four weeks of March, the report showed, whereas the NASDAQ 100 index plunged 10%, the S&P 500 declined 15% and the Dow Jones index fell 14%.
Estimated figures compiled by Pagot — the official returns will be released by mid-April — show that long-term saving funds posted losses of 8-9% in March — among the biggest monthly losses on record, he said — with pension funds posting declines in value of 6%-10%.
Other preliminary market estimates received by The Times of Israel show that the long-term savings instruments — including provident funds, insurance plans and advanced study funds — have declined in March by up to 6% in plans with low exposure to stocks, and around 15% and above in the higher stock-exposure plans. The losses for the first three months of the year are estimated to have been in the double digits.
Meitav Dash Investment Ltd., an investment management company, on Wednesday published figures showing that provident funds posted their worst month ever in March, with negative returns of 8% to 11%.
“The coronavirus situation has caused many of our customers to call us, concerned about their savings. They want to know what their situation is,” said Yael Geltman-levin, head of Pension Advisory at Bank Leumi Le-Israel Ltd., one of the nation’s two largest banks.
It is important to make sure that existing savings plans take into consideration the customer’s profile, the customer’s needs and the level of risk appropriate for the customer, as it should if set up correctly, she said. Once these factors have been considered, as these are long term savings, people shouldn’t be pushed to make “immediate dramatic changes,” she added.
“Our customers are showing maturity and levelheadedness, possibly because they have learned the lessons from the crisis of 2008, when we saw a high amount of redemptions, including in long-term savings funds,” Geltman-levin said. “If you don’t need the money immediately, then there is no need to make any dramatic changes. Past experience shows us that the markets usually correct themselves.”
Yudith, a 31-year old employee at a public relations firm, was placed on unpaid leave on March 16. She has since applied and been approved for unemployment benefits, as part of the government plan to help businesses, workers and families cope with the pandemic.
Finance Minister Moshe Kahlon on Monday announced an economic rescue package worth NIS 80 billion (approximately $22.5 billion), the largest in Israeli history, saying he believes that economic activity will gradually resume after this month’s Passover holiday.
Israel on Wednesday registered more than a million jobless citizens for the first time in its existence, as the coronavirus pandemic was putting more and more workplaces out of business.
The National Employment Service said that the number of unemployed stood at 1,004,316, with 35,668 new people registering for its services on Tuesday — the highest daily figure since last Thursday.
Almost a quarter of Israel’s workforce — 24.6 percent — is jobless as of Thursday, including some 160,000 people who had been unemployed before the crisis.
“I’m not sure how much money I am going to get from the government,” Yudith said. According to her calculations, using a formula provided by the National Employment Service, she should be getting some 70% of her monthly salary.
Yudith called her pension provider once she knew she’d be going on unpaid leave, to find out what her situation would be regarding the payments she and her employer were supposed to make into her savings funds.
“They told me that there is some sort of an automatic thing that still keeps my policy alive with just a risk factor, without us adding to the fund,” she said. This will stop after five months. “I’m not really sure I understood what they told me.”
She is “somewhat worried” about her financial situation, she said. “Even if I get unemployment it won’t be the entire amount of the salary, and there is an unknown as to when we will be able to get back to work. And that is upsetting.”
Pension funds and life insurance plans all have a savings component, which accumulates in each fund, as well as a risk component, which provides coverage to the members (the policy owners) and their families in cases of loss of ability to work due to sickness or accident. This risk component also allows members to get disability payments and provides family members and beneficiaries with the policy owner’s pension or life insurance payments.
“Workers who are on unpaid leave or unemployed should make sure that during this period, the payments for the risk element in their savings plans will continue. There are automatic triggers to keep the risk element alive for five months,” and the Finance Ministry is considering extending this period, said Ezra Poran, a pensions adviser at Bank Leumi. The premiums for the risk element come out of the savings themselves, he explained.
After five months, the owner of the plan needs to contact their pension provider to extend the plan, Poran added.
When considering the hit to pension funds, a distinction needs to be made between people who are in their 30s and those in their 60s, said Poran.
“At thirty, you are still at the beginning of your road,” he said. “You have tens of years to build up your pension, so you have ample time to wait for the markets to recover and rise back up again.”
If you are close to retirement, however, “you should contact your pension adviser and let them know about your situation and when you plan to retire. And, accordingly, decisions should be made that are relevant to their pension plans,” said Poran.
“Regardless of ones’ age, if someone wants and needs to use the funds now, redeeming a pension plan can significantly reduce the person’s pension-savings for the rest of their lives,” he said. “A plan must be made to see how to reduce the damage.” Each case is individual, so no generalizations can be made about this issue, he added.
People who are short of money due to unemployment may decide to bite the bullet and dip into their more easily accessible education funds, which can be accessed tax free every six years, or with a penalty at any time, said economist Pagot.
Many may not have the luxury of waiting out the crisis, Pagot said. Instead of using the savings for a vacation, a new car, or a deposit on a home, they might dip into their savings for day-to-day needs.
The money invested in long-term pension funds have posted drops only on paper for now, he said. “As long as the crisis does not last for years, and is a matter that will be resolved in weeks or months, the value of these funds will probably go up again as stock markets rebound after the crisis,” Pagot said.
So, if the crisis is short-lived, as most economists forecast, then the hit to ththose who have only recently begun their savings and pensions plans, will be limited. If it is longer term, the younger population will also suffer.
“If you are unemployed, you don’t have a pension plan,” he said. Struggling businesses may decide to switch to freelancers instead of full-time employees in order to avoid having to make pension payments, he noted.
Meanwhile, Yudith, the PR employee on unpaid leave, had just finished an online workout using the Zoom videoconferencing app at her home in Tel Aviv. Her financial plight was “not her biggest worry,” she said. The coronavirus quarantine is making it hard for her “to maintain a healthy lifestyle, without any routine, no regular workouts, less sleep and a lot more eating, and being without my friends.”