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Economic Aspects of the Amendment of the Pension Funds Regulations / הבטים כלכליים לתיקון בתקנות קרנות הפנסיה

יפה מכנס-כספי and Yaffa Machnes
Social Security (Hebrew edition) / ביטחון סוציאלי
חוברת‎ 20 (אב תש"ם, אוגוסט 1980), pp. 89-98
Stable URL: http://www.jstor.org/stable/23268524
Page Count: 10
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Economic Aspects of the Amendment of the Pension Funds Regulations / הבטים כלכליים לתיקון בתקנות קרנות הפנסיה
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Abstract

At the end of 1978, the pension funds of the Histadrut (General Labor Federation) and the government reached an agreement on a change in the method of computing pensions. Until then, wages during the last three years prior to retirement had been taken into account for purposes of computing pensions. According to the new method, the worker's pension during the entire period of his employment will be taken into account. For each year, the ratio of his wage to the average wage in the economy will be calculated and on retirement the average of all the ratios will be calculated and the pension will be computed according to this average. At the same time, the pension base was extended : according to the new agreement, both the employer and the employee set aside sums from the vacation allowance, clothing grant and the like to the pension fund whereas in the past fixed percentages of wages only were set aside for pension purposes. The expanded base does not yet include car and telephone allowances which often constitute a considerable proportion of income so that the pensioner will not receive 70 percent of the income he received when employed. Until 1979, pensions were linked to the wages paid to people with the same grade as that which the pensioner had before retiring. From now on, the pension will be linked to the consumer price index. It is not yet clear whether the changes will increase the pensions of all workers on retirement but they are an improvement from the viewpoint of the funds and the economy as a whole. People retiring in the near future have special agreements to ease the situation for them; therefore they agreed to the changes that were introduced. As a result of the agreement, the connection between provisions to the pension funds and the rate of the pension has been strengthened and the funds now have the possibility of improving their actuarial basis. The expansion of the pension base has also led to a stronger link between the worker's wage when he is young and his pension when he is old and its further expansion should be attained. The breaking of the connection between pensions and grades and the former's linkage to the consumer price index are also justified. In fact, the previous linkage to grades led to an erosion of the pension since instead of raising the wages of an employee with a certain grade, new grades were introduced in most cases, thus preventing the raising of pensions and, as a result of inflation, causing them to fall in real terms. Pensioners do not have the power to struggle for higher pay or even for maintenance of the real value of their present pay. The breaking of the connection between pensions and historic grades is also justified from the funds' point of view. The pensioners do not belong to the labor force and there is no justification for compelling the funds to pay them the increments achieved in negotiations held between the young workers and their employers. Approximately 90 percent of the pension funds' reserves went to the purchase of government bonds linked to the consumer price index. The funds' liabilities are linked both to real wages in the economy until the day the worker retires and to the consumer price index. If real wages rise more than predicted by the funds, then the latter are liable to encounter difficulties. Thought should therefore be given to the issue of bonds linked to wages in order to help the funds avoid risks with which they are incapable of coping.

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