This plan is a provident fund enabling flexibility in the distribution of the ongoing costs of insurance and savings, a division which directly affects the accumulation of savings for retirement age .
Until the year 2000, at retirement age, it was possible to choose between receiving amount saved in a senior employees insurance plan of type "Adif"/ Meitav/ Meniv/ Yoter as a lump sum or as a monthly pension for the whole of life .
In addition there was no salary ceiling for deposits by employees and employers .
The main chanhes under the Budget Enabling Law 200 (commencing on 1/1/2000 ):
1. Setting of a ceiling for deposit for pensions of four-times the average salary in the economy .
2. New deposits starting on 1/1/2000 into a pensions policy are available for withdrawal only as a pension .
Until 31.12.1999, the amounts available for withdrawal could be withdrawn as a lump sum free of tax .
Senior employees plans :
Insurance for lump sum purpose
In this plan, the amounts accumulated for pension age can be withdrawn as a lump sum, and cannot be received as a pension .
Deposits can be made into a lump-sum plan free of tax at the time of deposit, up to an entitling ceiling income of 7,300 NIS monthly salary – correct as at January 2006 .
Amounts paid by the employer for benefits into a lump-sum plan in excess of this ceiling are liable for tax by the employee at the marginal rate of tax, on making the deposit as if it was part of his income .
Lump-sum plan withdrawal rules
From 2004 on withdrawal, real gains (return in excess of the index) of lump-sum funds will be taxed at 15% (January 2006 )
Up to 31.12.2004, funds can be withdrawn from the lump-sum plan free of tax in case of unemployment/becoming self-employed over a continual period of over 6 months, or in the case of a new employer who does not make social benefits payments for his employees for more than 13 months in accordance with the provident fund regulations, and also incase of illness in the family .
Commencing 01.01.2006, apart from certain exceptional cases, funds can be withdrawn at age 60 (man and woman) conditional on at least 5 years membership of the fund .
Comment: Withdrawal at age 60 is free of tax. Tax is payable on real gains at a rate of 20% (January 2006 ).
Withdrawal at age 65 – free of tax on the principle and the gains .
Plan with a capital annex :
Plans to which a capital annex applies are regarded as capital plans in every respect .
The entitling ceiling in respect of severance pay and benefits is the ceiling permitted for deposit without creating a tax liability on the part of the worker when making the deposit .
Amounts deposited in excess of the ceiling (7,300 NIS as at January 2006) into a pensions plan which has a capital annex are automatically allocated to pensions and are not regarded as income in the hands of the worker .
The capital annex can be applied to pension plans opened between January 1992 and August 2000. (Plans opened prior to January 1992 and from September 2000 on are regarded as pensions only plans ).
A pension plan to which a capital annex does not apply – amounts accumulated for benefits up to 31st December 1999 will be regarded as being available for lump-sum withdrawal free of tax (when withdrawn in accordance with the rules ).
Pension plans
Pension-type senior employee insurance is a plan which pays a monthly pension on retirement for the whole of life, which is liable for tax in accordance with the tax bands for pensioners .
Payments can be made into a pension plan up to four times the average monthly salary in the economy. Over that ceiling, benefits payments made by employers will be considered as taxable income in the hands of the employee at the time the deposits are made .
It is usual to split pension plans into four main periods :
- Pension plans commencing up to 1989 – these pans receive a guaranteed return of 4% – 4.25% and a guaranteed pension factor .
- Pension plans commencing in 1990 receive a guaranteed return of 3% and a guaranteed pension factor .
- Pension plans commencing between January 1991 and May 2001 are with-profits plans and enjoy a guaranteed pension factor
- Plans commencing from June 2001 do not enjoy a guaranteed pension factor .
What is the pension factor ?
This is the number sated in the insurance contract. The amount saved in pension polices at the end the period is divided by this number. The result is the monthly pension to be paid by the insurance company for the whole of life .
- In the case of pension plans commencing up to the end of 1989 – the pension factor for a man was 144.2, that s for every 144,200 NIS saved, a pension of 1,000 NIS per month is received for the whole of life .
For a woman the pension factor on policies commencing during the same period is 156.8 .
- For policies commencing in 1990, the pension factor is 153.16 for a man and 167.32 for a woman .
- For policies commencing from 1991 until May 2001 the pension factor for a man is 166.66 and for a woman is 183.81. These policies are with-profits and do not have a guaranteed return .
Note: A pensions policy opened in 1991 enjoys a guaranteed return of 3% on 40% of the money and the remaining 60% is on a with-profits basis .
For policies commencing from June 2001 on the pension factors were reduced by approximately 20% and the insurance companies are able to change the factor with the approval of the Ministry of Finance .
The following is a table of pension factors at retirement age :
| date | woman | man | ||
| Retirement age | 65 | 60 | 65 | 60 |
| 01/1985 | 156.50 | 174.00 | 144.20 | 161.30 |
| 01/1990 | 167.32 | 187.80 | 153.16 | 172.91 |
| 01/1991 | 183.21 | 209.34 | 166.63 | 190.79 |
| 06/2001 | From hereon in can usually be changed and is at a rate of between 210-240 |
Management fees for senior employees insurance
Up until 2004 the insurance companies collected management fees from two sources:
From the cost of insurance in the policy
With-profits minimum 0.6% management fees from the accumulation and above 2.5% return, 15% to the insurance company and 85% to the policy holder.
The management fees on plans commencing in 2004, where the investments are managed in a similar manner to a bank account. The guiding principle is full transparency and disclosure of all the policy conditions.
The management fees on insurance plans commencing in 2004 are divided into two types:
Management fees on the ongoing premium of 13% or less
Management fees on the accumulation: 2% or less
The Lev HaDekel Group has special arrangements with the insurance companies so as to ensure maximization of long term savings for both the employer and the employee.
Disclosure
The Ministry of Finance Insurance Inspector’s regulations require due disclosure detailing amongst other things: the name of the agent, the type of plan purchased, the amounts of insurance, savings, management fees and withdrawal fines in a clear and detailed manner.
When changing a policy, the agent is required to prepare a comparative table detailing the existing and proposed policy with an explanation as to the change and its reasons.
Commencing 10.02.2006, marketers are required to sign the policy holder on a "Best Advice" document explaining amongst other things why it is recommended the insured person should be with one company or another and whether the agent is a consultant or a marketer.
The procedures and rules at Lev HaDekel are in the forefront of the various rules, for serving our clients.