Starting in July, 2008 local consumers will be able to switch their
pension savings to various other instruments and companies.
After a long series of drafts, objections and lengthy debates in the
Justice Ministry, Finance Minister Roni Bar-On yesterday signed off on the
regulations allowing the transfer of pension savings, and has passed them
on to the Knesset Finance Committee for approval.
The new rules will regulate movement between the various pension tracks:
pension funds, life insurance and provident funds. The rules will remove
bureaucratic barriers to the transfers, which until now have allowed
pension providers to place stumbling blocks in the path of consumers
looking for better investments for their retirement savings.
The regulations will take effect on July 1, 2008, and
will herald a real revolution in financial markets that will increase
consumers' opportunities and power vis-a-vis the providers.
Customers will now be able to move their savings
whenever they choose, and as often as they choose - even if frequent moves
may not necessarily be to their benefit. They will also be able to bargain
over fees and the quality of service - even if in the end they choose not
to move their pension savings elsewhere.
In any case, the most important development is that
consumers will now be able to choose the most appropriate pension
instrument for them and their families.
The move to a new plan will be cost-free and will not
create any tax liability. The customer's present provider will be required
to make the desired transfer within 10 days. However, in certain cases
where insurance policies contain a clause requiring fine for early
withdrawal of funds, the insurance companies may deduct that amount.
However, government policies favor pension plans with
monthly payments, and not a one-time payout at retirement. Therefore, it
will be possible to switch money accumulated in savings plans, such as
insurance policies or provident funds, with a one-time payout at
retirement to pension funds or other instruments that pay monthly pensions
- but not in the opposite direction.
For example, savers can move money from so-called
executive insurance policies to a pension fund, but not in the reverse
direction. But consumers can move monies between various funds of the same
type - for example, between insurance companies.
The process will require filling out a form with the
new, desired provider. If the new company wants the customer's business,
it will send a request to the old provider within 10 days, and the latter
will have at most another 10 business days to make the transfer.
During the first two years after the change, through
mid-2010, companies will be allowed 30 days to make the transfer, a
temporary period intended to let the providers organize for the change in
Veteran pension funds, run by the state under a
special management arrangement, are not subject to the new rules. Present
retirees and recipients of disability pensions will not be able to switch
Also, anyone choosing to move the pension part of an
insurance policy will be allowed to continue the life insurance and
disability sections of the policies - and pay for them separately.
The insurance companies will be the big losers from
the reforms, and they were also the biggest opponents to the the
treasury's draft proposals.
It is likely that many consumers will choose to move
their pension savings from the insurance companies, with their high
management fees, to lower cost savings plans - in particular, pension
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