OECD: Israel should rework pension tax, increase retirement age

In a report yesterday, the Organisation for Economic Cooperation and Development laid out a slew of changes Israel should consider for its pensions and other social systems as it tries to join the OECD.

The organisation said the tax breaks for the mandatory second pillar system, which covers two-thirds of workers, favour the rich. "Tax concessions are of greatest benefit to the highest earners. Also, it is not necessary to give highly favourable tax treatment to mandatory pension savings," the report said.

The OECD said tax benefits should be aimed at voluntary savings above the mandatory amount, and targeted at low and middle income earners who are less likely to save for retirement.

Separately, Israel should relax its qualifications for a top-up to the basic state pension, the OECD said.

Israel offers a basic state pension, with means-tested top-ups available for elderly with low incomes. If the pensioner qualifies for the top-up, the income should land above the poverty line. But the OECD said the qualification requirements for the top-up are too strict, with only about a quarter of older people receiving extra funds.

"The most effective way to tackle poverty among today's older people would be to reduce the severity of the means test and contribution conditions," the report said.

To offset the extra costs, the OECD recommends increasing the pension age for women to 67, the same age men can retire.

"Trends in life expectancy and the cause of equality between the sexes also support such a move," the report said.

 

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