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Government holds 'safety net'
older pension funds
Yoram Gavison, Zvi Zrahiya, and Haim Bior
May 21, 2003
- The Finance Ministry will set aside NIS 7 billion as a safety net
to guarantee the yield of the veteran pension funds does not fall below a
certain minimum, the treasury's budgets director, Ori Yogev, told the
Knesset Finance Committee yesterday.
As part of the proposed economic recovery plan, the
government intends to send the veteran pension funds, which because of
actuary deficits stopped accepting new clients in 1995, to the capital
market; currently, the revenues of these older funds are guaranteed by
designated government bonds that provided a return of 5.57 percent.
The NIS 7-billion fund is apparently designed to counter
the charge that stopping the issue of designated, guaranteed-return bonds
and forcing the funds to invest in the capital market compromises
The NIS 7 billion will be used to issue designated bonds
should the annual yield of the pension funds fall below a threshold, to be
defined by a special committee with representatives from the public.
Apparently, the figure will be around 4 percent.
The NIS 7 billion will be added to NIS 70 billion that
the treasury has already committed to allocate for the old pension funds
until 2038, to cover some of their debts, which according to the treasury
total NIS 137 billion.
The treasury issues designated, non-negotiable bonds for
the veteran pension funds, which guarantee a 5.57-percent annual return.
As part of the economic recovery plan now in the pipeline, the government
intends to reduce the ratio of the bonds in the funds' portfolio from the
current 93 percent to 30 percent, and allow them to invest in regular
government bonds and other bonds rated
A or more, namely, ones that are considered low-risk.
The treasury pledges to issue designated bonds with a guaranteed return of
4 percent once the ratio falls below 30 percent.
The NIS 7 billion fund will be maintained for 35 years,
until all entitled pensioners pass away.
The chance that these funds will be used in the next few
years are low, because the bulk of the pension funds' portfolio - 93
percent - is in designated government bonds that provide 5.57 annual
interest. It is therefore unlikely that any loss on the remaining 7
percent would push total yield below 4 percent.
The budgets director also said that the commissioner of
insurance would appoint managers for the pension funds out of a list of
candidates, to be composed by a special committee.
Finance Committee Chairman MK Avraham Hirschson (Likud)
threatened yesterday not to put the pension issue to a vote by the
committee unless he gets "satisfactory clarifications" as to how
the treasury plans to support the funds.
Hirschson was fuming after Yogev read a letter addressed
to Hirschson at the meeting, before the latter had even seen it.
"It is standard practice to send a letter before
reading it in public and allowing me to at least address it and form an
opinion. I am not happy with the way the pension matter is being dealt
with, because there are many sudden changes and some of the issues are
still being discussed elsewhere [between the treasury and the Histadrut
labor federation, which as of now controls the pension funds],"
"Therefore, unless I get all the details and
explanations pertaining the pension funds, I will consider not putting the
pension section to a vote as part of the economic plan," the Finance
Committee chairman added.
The treasury's former capital market supervisor, Meir
Shavit, said at a meeting of labor unions yesterday in Tel Aviv that the
treasury's plan to cut the pension payment would prompt many people -
especially the younger ones - who are currently saving with the veteran
pension funds, to withdraw their money.
"Shavit has been hired by the Histadrut to counsel
it in its campaign against the treasury, which wants to take the pension
take the troubled funds out of the hands of the Histadrut. The government
is now abandoning pensioners to deal with the risk themselves, Hirschson
"The government today does not have the necessary
capital to go on subsidizing the pension funds with designated bonds, and
is substituting its protection by cutting pensioners' rights.
For the first time in years, not only the rights of
contributing clients will be cut, but also those of pensioners, whose
payments will be slashed by 2 percent, Shavit said.
Histadrut chairman Amir Peretz said the talks with the
treasury regarding the pension funds have come to a dead end after the
treasury stipulated "impossible conditions" to concede his
proposal to set up a committee that would form recommendations on the
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