The new year we started a few days ago marks a year with quite a few consumer reforms in the field of pension savings, starting with a discount on management fees for pensioners, the end of the default fund tender and perhaps a few more surprising reforms from the Capital Market Authority.
Planning to retire in 2021? Your pension is expected to be higher
Even after retiring, retirees continue to pay management fees. To date, the management fees paid by retirees have been 0.5% in the new pension funds and 0.6% in executive insurance. The Capital Market Authority intends to reduce the management fee for retirees to 0.3%.
In October 2019, the Commissioner of the Capital Market, Dr. Moshe Barkat, arrived at the Knesset Finance Committee. The committee members criticized him for handling the management fees of pensioners. While management fees for savers have fallen sharply in recent years, management fees for retirees have remained high. The Supervisor of Insurance assured the members of the committee that if the market forces do not regulate the issue, the Authority for the Supervision of the Capital Market will intervene and regulate the issue of management fees for recipients of benefits. And here a year later, despite the corona crisis, the commissioner’s promise is being fulfilled, according to a draft regulation published last month, starting this January, the management fee for new benefit recipients is expected to drop to 0.3%. The move means that the old-age pension of those who retire in 2021 will be 2% higher.
To whom does the management fee reform apply?
The reduction in management fees for pensioners will affect everyone who retires from the new pension funds starting in January 2021, the comprehensive pension funds and the supplementary pension funds. In addition, executive insurance that will sell from January 21 will set a management fee for retirees of 0.3%.
It is important to remember that those who have retired so far will not be affected by the reform and will continue to pay the management fees set for them at the time of retirement.
Selection of new selected pension funds
The default fund auction is expected to end over the next year, who will the funds choose and will the low management fees be maintained?
In order to encourage competition in the field of pension savings, four pension funds were selected in 2018 by the Capital Market Authority, which offered discounted management fees. The foundations are Altshuler Shaham, Hellman Aldubi, Meitav Dash and Psagot. And the management fee they offered to joiners is guaranteed for a period of 10 years from the date of joining.
In the coming year, the tender in which four funds were selected is expected to be completed, and this is the last opportunity to take advantage of the management fees set in the previous tender. If in the future the funds they choose offer cheaper management fees, it will be possible to move to them and take advantage of the new conditions.
What else awaits us in 2021?
In the report of the Commissioner of the Capital Market published a few months ago, the Commissioner of the Capital Market, Dr. Moshe Barkat, hinted at a number of reforms that he plans to lead in the coming year. Among the things that have been published are a reform in the areas of tax benefits for savers and a reform of the management fee in pension savings products.
According to the Commissioner, the planned reform is divided into two parts, the first part of the reform emphasizes the welfare of the saving public and the second part deals with increasing the unification of interests in the field of investments between the institutional body and the saver.
“The first is the ‘differential management fee’ reform, which establishes a common practice in investment management around the world, according to which there is a balance between the amount of resources required to manage the investment route and the management fee paid for this investment. This will allow low management fees to be collected on passive or solid investment channels. Investment tracks for adults approaching retirement age) and collecting higher management fees for tracks with active investment management ”
According to the Commissioner, management fees should be reduced in the passive tracks or in low-risk investment tracks, while in the higher-risk tracks, it will be possible to charge higher management fees, including management fees in the “success fee” model.
“A second reform is the ‘variable management fee’ reform, which is intended to enable investment routes with a reward mechanism that increases the relationship between the investment manager and the saver, in order to increase the net return to savers while controlling risk-taking incentives. .
Increasing the deposit ceiling in the investment provident fund?
In his speech at the conference, the Commissioner once again emphasized the importance of pension savings products and called for increasing the deposit ceiling for the provident fund for investment from NIS 70,000 as it exists today to NIS 250,000 and continuing to develop the insurance products held by insurance companies as an alternative to savings products offered by the banking system.
Do not forget the corona is still here
Along with the planned reforms, it should be borne in mind that the corona virus will continue to accompany us in the coming months, and probably alongside the expected reforms, we will later see the relevant temporary provisions for pension savings and the corona virus.
The author is Nadav Tessler, Professional Vice President at Hellman Aldubi Provident and Pension Funds, has a pension marketer license, is a lecturer at Netanya College and owns the blog: Pension, Understanding the Pension
Disclosure, Hellman Aldubi Provident and Pension Funds is one of the four default funds
* The above should not be construed as a recommendation for the performance of operations and / or investment advice and / or investment marketing and / or advice of any kind. The information presented is for information only and is not a substitute for advice that takes into account the data and the special needs of each person. Anyone who uses the above information – does so at his own discretion and sole responsibility. The company and / or the authors hold and / or may hold some of the papers mentioned above.