Pension conversion factor: the hidden number that determines your monthly pension

Most people saving for retirement focus on one figure: how much money has accumulated. That matters, but it is only half the story. At retirement, the savings must become a monthly pension. This is where the pension conversion factor comes in.

Reading time: 8 minutes
Complexity: Intermediate
Last updated: August 2026

It sounds technical, but the idea is simple:

How does it work in practice?

The basic calculation looks like this:

Your accumulated savings ÷ pension conversion factor = monthly pension

The same one million shekels—a different monthly pension

Scenario A: You have accumulated one million shekels and the factor is 200. Your monthly pension will be approximately ₪5,000:

1,000,000 ÷ 200 = 5,000

Scenario B: You have accumulated one million shekels and the factor is higher—for example, 220. The pension will be lower:

1,000,000 ÷ 220 = 4,545

In other words, the same one million shekels can become a very different monthly pension solely because of the factor.

Why does the factor change?

Because the pension fund does not pay you all the money on retirement day. It commits to paying a monthly pension for the rest of your life.

To calculate the factor, the pension provider needs to estimate the average number of years for which people will receive a pension, life expectancy, economic assumptions, and the retirement track you choose. According to Kol Zchut, the conversion factor is determined in part by life expectancy and mortality tables, and it may change during the pension-saving period.

Here is the sentence nobody likes to hear:

When people live for more years, the money needs to cover more months. Therefore, an increase in life expectancy can generally lead to a higher factor—and a lower monthly pension.

Why is it especially important near retirement?

During our working years, we are accustomed to talking about accumulation: how much money is in the fund, what return it achieved, and how much was deducted in management fees.

As retirement approaches, the question changes. It is no longer only “How much money do I have?” but:

How much monthly income will this money provide?

Two people can reach retirement with exactly the same amount of savings but receive entirely different pensions because of:

Different retirement ages.
Different retirement tracks.
Family status and the percentage of pension guaranteed to a spouse.
A guaranteed payment period.

Before you begin withdrawing the money, you therefore need to examine the factor’s terms and the effect of every choice on your net income.

The retirement track: not only “How much will I receive?” but also “What happens afterward?”

At retirement, you generally need to choose a pension track. This is not merely a technical or procedural choice. The track determines not only how much you receive each month, but also what happens to your spouse, survivors, or heirs if you die.

Every protection you add costs money and changes the factor:

Protection for a spouse: If you choose a track that guarantees a higher pension for your spouse after your death, the factor will generally rise and your current pension will fall.
Guaranteed payments: If you set a guaranteed payment period—for example, a commitment to 240 pension payments for the family even in the event of an early death—the factor will rise and the ongoing pension will decrease.

A guaranteed factor: why does everyone talk about it?

If you have an older Bituach Menahalim (ביטוח מנהלים), you may have heard the term “guaranteed factor.”

A guaranteed factor is a number set on the day you joined the policy, and it is fully protected from changes or increases in market life expectancy. Such a factor exists only in certain Bituach Menahalim policies opened before 2013. In pension funds, Kupot Gemel (קופות גמל), and newer Bituach Menahalim policies, the factor is not guaranteed and is determined according to the relevant terms and tables on the actual retirement date.

You need to examine the full picture: management fees, which tend to be very high in older products; the fund’s performance and returns; insurance costs; and how the policy fits your actual needs today.

Is a lower factor always better?

On paper, a lower factor means a higher pension. But you should not choose a pension product based on this measure alone, for the simple reason that the factor is only one part of the formula.

Even if your factor is excellent, expensive management fees or low returns over the saving years can significantly reduce your investment portfolio. Sometimes a product with a less attractive factor but very low management fees and strong returns may bring you to retirement with a substantially larger balance—enough to compensate for the higher factor.

Retirement checklist: what must you examine before starting?

The transition from savings to a pension is one of the most important financial crossroads in your life. Do not settle it in a hurried phone call with a service center. Review the following items:

What should you check before receiving a pension?

Consolidate the data: What is the total accumulated amount across all your pension products?
Check the factor: What exact pension conversion factor is offered in each product?
Compare tracks: What will your monthly pension be under each available retirement track?
Survivors’ protection: What will happen to your spouse if you die, and what percentage of the pension will remain for them?
Guaranteed payments: Is a minimum guaranteed payment period appropriate for you?
Map older products: Do you have an older Bituach Menahalim policy with a guaranteed factor?
Timing: Should you begin receiving the pension now, or would it be better to defer it?
Tax considerations: What are the effects of taxation, Kibua Zechuyot (קיבוע זכויות, fixing pension tax rights), or continuing to work while receiving a pension?
Small funds: Are there additional small Kupot Gemel or savings accounts that should be withdrawn or consolidated before the pension begins?

When should the factor concern you less?

If you are young and far from retirement age, the factor displayed in your annual reports is mainly a simulation and general estimate. It will change many times before you retire.

At a young age, your strategic focus should be on the things you can control here and now: the size of your monthly deposits, reducing management fees, choosing an age-appropriate investment track, and maintaining pension continuity. As you approach age 60, this number will change from a distant figure in a report into part of your financial reality.

The bottom line

The pension conversion factor is one of the most important numbers at retirement, but it does not need to frighten you.

It is simply the number that translates your pension savings into a monthly pension. The same amount of savings can produce a different pension depending on the factor, retirement age, track selected, promises to survivors, and the terms of the pension product.

In simple terms:

Throughout your life, you accumulate money for retirement. On retirement day, the pension conversion factor determines how that money becomes a monthly income.

The quality of our articles is very important to us. If you find an error, inaccurate information, or a detail that needs updating, please email us at:

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Sources and links

Kol Zchut (כל זכות) — Pension conversion factor — An explanation of the pension conversion factor, a guaranteed factor, and the relationship between the factor and the monthly pension. (Kol Zchut)
Kol Zchut — Bituach Menahalim — An explanation of Bituach Menahalim, guaranteed factors, and the changes applying to new policies from 2013. (Kol Zchut)
Kol Zchut — Comprehensive pension fund — An explanation of how a pension is calculated, including accumulated savings, returns, and calculations based on life expectancy. (Kol Zchut)

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