“The public chose solid investments and missed the stock market”

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Bank of Israel Report for 2020: With the outbreak of the corona crisis, the Israeli public transferred its pension savings and study funds to solid tracks. This concern, in retrospect, actually led to potential losses, as the stock markets rose during this period.

Another figure indicates that last March, when the magnitude of the epidemic became clear, and that it was not about to leave soon, the public stormed its savings and sought to redeem them from the institutional bodies. Most of the demands for redemptions in 2020 were made in that month. The amount of withdrawals from the savings product increased, the smaller the tax benefits in it and the higher its level of liquidity. This is according to the report, part of which, “Withdrawals from the various savings products during the crisis,” was published today (Wednesday).

Impact on markets

The new pension funds, by contrast, did not have any unusual withdrawals throughout the period. On the other hand, in mutual funds, the withdrawal rate in March was high, and withdrawals were observed from all investment tracks. In other words, the public redeemed money that could have been redeemed without paying a high fine, or losing tax benefits.

The Bank of Israel also says that in the study funds and provident and pension funds – not only did the public not redeem money, but it transferred its money to more solid programs, with a smaller share rate. In doing so, in retrospect, it is possible that the public harmed itself because the stock exchanges recorded increases that it lost.

In the last 20 years, the savings rate that the public manages through the institutional bodies from its portfolio has increased from 35% to more than 54%. In times of great crisis, the public tends to redeem money from savings for two main reasons: the fear of market falls that will hurt savings and the need to use the money in a time of crisis.

The Central Bank explains that the level and characteristics of withdrawals in times of crisis can have an effect on the value of household savings and volatility in the financial markets. In the Corona crisis, similar to the 2008 financial crisis, the unusual withdrawals of savers from institutional bodies in Israel were coordinated with the shocks in the markets.

It turns out that the increase in the number of unemployed and unpaid workers did lead to a decrease in deposits in relation to the growing trend of recent years, but there was no increase in withdrawals from pension funds, and there was even a decrease, so the effect on accruals was low.

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