State watchdog: As Israelis live longer, women’s retirement age must rise to 64, at least

In the coming years, with the rise in life expectancy, Israel’s population of elderly citizens is expected to dramatically grow, but the government is ill-prepared to deal with the projected financial hit to state-subsidized pension plans, according to a state comptroller report published Wednesday.

State Comptroller Yosef Shapira urged the government to gradually raise the retirement age for women, while calling out Finance Minister Moshe Kahlon for delaying the appointment of a committee to evaluate the issue. He also rapped the Israel Defense Forces for hefty increases of its pension funds for military retirees, criticizing the army for spending hundreds of millions of shekels from the state budget in generous retirement bonuses.

Regarding the aging population, the government’s preparations for the projected demographic shift are “insufficient,” maintained Shapira.

“The country’s pension system is facing major challenges arising from the increase in life expectancy and the expected decline in the number of people of working age, relative to the elderly population. The government’s efforts to deal with the situation are insufficient, and may damage pension savings,” warned Shapira.

Shapira moreover lamented a discrepancy in the numbers: According to a 2014 Central Bureau of Statistics report, Israel’s elderly population (over 65) will nearly double by 2035 (from 900,000 to 1.66 million) — a projection Shapia called “optimistic.” Meanwhile, the Finance Ministry’s Capital Market, Insurance, and Savings Department and National Insurance Institute were relying on different models of predicting life expectancy. The offices should coordinate their numbers because of the economic ramifications of their projections.

In January 2016, the OECD warned of high poverty rates among Israel’s elderly, pinpointing low pension rates as one cause.

“Poverty is especially high among the elderly in Israel, in part because of low basic pensions… To reduce elderly poverty, Israel should increase the generosity of basic pensions without creating work disincentives,” the OECD said.

The state watchdog, however, prescribed that the government, as a first step, must gradually raise the retirement age for women at least until 64, from its current 62, as it has pledged to do.

“The aforementioned suggests that not raising the retirement age for women is unsustainable, and will likely have significant adverse effects on the economy and on elderly women retiring on pension,” he wrote. “Failing to raise the retirement age for women is liable to perpetuate economic disparities and inequalities between men [who retire at 67] and women… and is also expected to perpetuate the high poverty rates among elderly women, compared to elderly men.”

Shapira reprimanded Kahlon for postponing the implementation of a government resolution to raise the retirement age for women.

Keeping the status quo on the retirement age for women will likely “damage the financial stability of the National Insurance Institute; [cost] billions of shekels in government assistance to veteran pension funds; lower state revenues; increase government spending, and [cause] a marked downturn in the debt-to-GDP ratio in the long run,” said Shapira.

Growing military retirement bonuses

In July 2015, the Locker Report, commissioned by Prime Minister Benjamin Netanyahu in 2014, proposed cuts to the Defense Ministry’s famously generous pension plans. It suggested that NIS 9.6 billion could be trimmed off the budget in total by the end of 2020 by changing the terms of retirement, cutting staff officer and combat-support roles and, among other things, changing the terms under which a soldier is eligible for disability payments from the Defense Ministry.

At the time, IDF chief of staff Gadi Eisenkot said the army would study the findings but stressed that army career officers “should be treated with due respect” and that “harming them harms the IDF’s ability to fulfill its role” and “unnecessarily harms the public’s faith in the IDF.”

According to Shapira, the military’s retirement bonuses, known as an “IDF chief increase,” have only grown increasingly lavish since 2013. The report said that over half (63%) of military workers who retired in 2015 received at least a seven percent increase to their pension fund, and nearly one-quarter (23%) received an 11% bonus or more. This was on top of an automatic 6 percent bump for soldiers who joined the IDF as career officers since 1997.

“Despite the fact that the percentage increases of the IDF chief accumulates hundreds of millions of shekels in the state budget every year, there is no indication that the manpower directorate or budget division in the Defense Ministry take into account the limitations of the security budget in the decisions by the IDF chief to increase the pensions by [various] percentages,” Shapira said.

Mitch Ginsburg contributed to this report.