Pension funds will not (in the meantime) increase the management fee for Corona layoffs – financial consumerism

Insurance continuity in a pension fund is a very important thing, which ensures insurance coverage for savers, along with regular deposit of money throughout the years of work. Many times when a person moves between jobs a time passes between the previous employer’s last deposit and the new employer’s deposit. If there is a period of more than 5 months in which there are no deposits in the fund, the pension fund (ie this is what it is expected to do) may make the saver’s nest ‘inactive’ (whether the saver has left the workplace or simply no deposits for reasons Others – so it is very important to keep track of current deposits and see that everything is fine).

In fact, a pension fund may turn an ‘active’ fund into an ‘inactive one’ for a saver who stops depositing money into the fund on a monthly basis – as stated, after five months of inactivity. This means that the saver loses the rights he has accumulated and when he starts depositing again he will have to accumulate a ‘qualifying period’ of 5 years before he is covered again from an insurance point of view. In addition, when an employee starts a new workplace (without insurance continuity) the employer does not have to set aside pension funds for him in the first half year.

And of course the best-selling thing is the management fee: if the pension is not active, the pension fund may increase the management fee to a maximum of 6% of deposits and 0.5% of accrual (compared to about 0.2% of the average accrual management fee in funds).

To avoid violating rights, the most important solution is to pay the pension fund (alone) a monthly amount called ‘insurance risk’ and thus the rights in the fund can be maintained for a maximum of two years – until regular deposits with the new employer begin.

But as a result of the corona, many people found themselves out of work, and in any case without regular contributions to the pension fund – many people did not make ‘insurance risk’ – both because of lack of knowledge and because of financial inability to do so.

To help savers during this period, about a month ago, the Ministry of Finance issued regulations prohibiting pension funds from canceling insurance coverage for policyholders until June 2021. That is, the state has forced funds not to infringe on policyholders’ rights – for now. But if you do not work – take care of your fund! In the end, no one will do it for you.

So what’s new now?
Following the temporary order instructing the pension funds not to increase the management fee to the maximum allowed for savers who have been fired or have not stopped allocating funds to the pension until the end of October 2020, so the funds may not increase the management fee for a period of 12 months from the date of termination. The pension funds now agree to extend the consideration period and not to increase the management fee to a maximum until June 2021. This is after another request from the Capital Market Authority, in order to preserve the rights of savers when dealing with the consequences of the corona crisis.

At the request of the chairman of the authority, Dr. Moshe Barkat, all the pension funds (institutional bodies) agreed to set a ceiling for management fees for these savers – at the level of the average management fee charged by the body of all its savers. The Commissioner’s request to the institutional bodies included a call to join in continuing not to raise management fees in the funds until June 2021.

This means that they save that the existing accumulation management fee rate is higher than the average accumulation management fee rate in the same institutional body for the same product – the institutional body will not exceed the accumulation management fee rate.

In the case of a saver whose accrual management fee rate is lower than the average accrual management fee accrual in the same institutional body for the same product – the institutional body will not exceed the accrual management fee rate beyond the average management fee rate.

It should be noted that the funds did not say anything about raising the management fee for current deposits. That is, it is possible that the management fee from the accrual will remain as it was before, but when the employee starts a new job, he will find that the deposits have risen to the maximum ceiling – 6%. Therefore, in any case, savers should pay attention to what happens in the pension fund during the period when they are not working. Of course – in the future such arrangements will not take place so in any case every saver must learn to manage his pension fund in order to keep his funds with him.

Management fees reach hundreds of thousands of shekels throughout the pension savings period – and since this is over 40 years of savings it is a lot of money that savers simply give as a gift to their pension fund – simply because they do not know and prefer not to check what happens in their pension fund.

Dr. Moshe Barkat, Head of the Capital Market, Insurance and Savings: “I welcome the sweeping solidarity and the decision of the institutional bodies to join this initiative that takes into account the saving public in Israel, even though the contracts allow otherwise. This is not self-evident. This step is in addition to the many actions taken and initiated by the Authority in the past year to make it easier for the public of savers and policyholders in Israel. ”