Without state handling, National Insurance faces payout shortfall, watchdog warns

Israel’s National Insurance Institute (NII), which provides financial support to weaker segments of the population and families in distress, is facing a projected long-term deficit, and without government intervention, will not be able to meet its obligations to pay benefits to the public, a government watchdog group has warned.

“Israeli citizens will not receive the social support network they need, and for which they have paid their entire lives,” said Attorney Ory Hess, head of the economic department at the Movement for Quality Government. “The government knows all this, and yet has been ignoring the problem for years.”

“After a difficult two-year war and tens of thousands of wounded, ignoring the National Insurance Institute’s deficit is no longer a management failure — it is a serious governmental omission that endangers the social safety net of all Israeli citizens,” Hess cautioned.

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, and retirement. NII collects insurance payments from employees’ salaries and the income of the self-employed, and pays it out in welfare allowances.

The government watchdog lamented that the deficit has been growing for more than a decade, raising concerns that the NII’s fund will be depleted and run out of money to pay benefits to the public. Over the years, both the State Comptroller and the NII itself have warned of the worsening financial situation, but successive governments have preferred to ignore the ticking bomb, according to the watchdog.

“Despite a government resolution requiring regular discussions on the issue, over the past decade, only one discussion has taken place, and the socioeconomic cabinet has not discussed the crisis even once,” said Hess.

Earlier this month, the State Comptroller’s Office slammed Finance Minister Bezalel Smotrich for failing to convene the socioeconomic cabinet — the government’s forum for civilian and economic matters — during the peak of the war in Gaza, from December 2023 until December 2024, when it could have made decisions on important economic issues.

The NII, known in Hebrew as “Bituach Leumi,” ended 2024 with a deficit of about NIS 3.8 billion ($1.17 billion) and is expected to run into a deficit of around NIS 8 billion by the end of this year.

To deal with the “long-term deficit, the Finance Ministry is formulating, together with the NII, steps that will ensure the stability of the institution in the long term,” the Finance Ministry said in an emailed response to The Times of Israel.

In an actuarial report published by the NII last year, the institution stated that from 2023, national insurance benefits paid to the public are expected to exceed payments received. The NII said that to finance the shortfall and fulfill its payment obligations to the public, it will need to use its reserve fund in the coming years. As is commonly practiced by insurance companies, the NII charges the population more than it anticipates paying out, to make sure it has reserves for an aging population and for emergencies.

The institution forecast in the same report that by 2036, the reserve fund will be depleted, bringing forward the date it will run out of money by eight years, from 2044, in a previous actuarial report. The forecast report takes into account demographic changes, including aging of the population, retirement age, increases in life expectancy, unemployment rates, and other parameters.

“As early as 2036, the institution may not be able to pay the full amount of benefits to the public,” said Hess.