Pension plans and contribution amounts
Your retirement income depends not only on your salary but also on the type of pension plan and the contribution rate throughout your working years. This page explains Israel’s main pension products, compares pension funds, Bituach Menahalim and provident funds, and shows how much employees and self-employed people must contribute to build meaningful savings for the future.
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Israel's pensionA monthly payment made to a person after retirement from work in order to help maintain their standard of living. system has undergone dramatic changes over the years. It shifted from a system based on large state and employer budgets to one based on the personal responsibility of each of us. Understanding its structure is critical because it is the main source that will determine what your life looks like after you stop working.
To understand the full picture, you should know the sources that form the basis of retirement income, from the state's basic safety net to personally accumulated savings products in which your money works in the capital market.
Part 1: Pension plans in Israel—what is a pension?
The pension system is a collection of arrangements intended to provide a continuing monthly income, or annuity, to a person who reaches retirement age, loses the ability to work or dies. It consists of a public layer, Bituach Leumi (ביטוח לאומי), and a private layer that includes pension funds, provident funds and Bituach Menahalim (ביטוח מנהלים)A savings product based on an individual contract between the saver and the insurance company, combining a savings component and insurance coverage..
Before the shift to personal savings, the system was based on several models, some of which remain relevant:
- Kitzvat Ezrach VatikA basic allowance paid by the state to every resident who has reached the qualifying age. (קצבת אזרח ותיק), the senior citizen allowance paid by Bituach Leumi: A basic safety net for every resident who reaches retirement age—ages 62–65 for women and 67 for men—regardless of employment or savings. As of 2026, the basic allowance for one person is approximately 1,838 NIS per month and may reach approximately NIS 2,911 with seniority and age additions. Further details are available from Kol Zchut (כל זכות). There are also additions for spouses or dependent children and an income supplement for people who have no other sources of income or whose income is low.
- Budgetary pension (הפנסיה התקציביתAn older model in which the pension is paid directly from the employer’s budget according to salary percentages and years of service.): A model used in the public sector until the end of 2002. Under this method, the pension is paid directly from the employer's budget according to a formula of approximately 2% for each year of seniority, up to 70% of salary, without accumulating money in the capital market. Further details are available from Kol Zchut.
- Old comprehensive pension (הפנסיה המקיפה הישנהPension funds opened before 1995 that are based on rights accumulated according to years of service and salary.): The older pension funds that operated in Israel until March 1995 and were then closed to new members. Most are now managed by Amitim (עמיתים) as deficit funds under an arrangement. They are governed by rules rather than a personal contract and provide a guaranteed pension.
How does it work in practice?
During the working years, the employee and employer—or a self-employed person alone—deposit money each month into a selected savings product. The money is invested in the capital market and bondsA type of "loan" that an investor provides to a government or company in exchange for repayment of the principal plus interest., earns returns over decades and, at retirement age, is converted into a monthly pensionThe monthly amount paid to the saver in retirement, calculated by dividing the amount accumulated by a "conversion factor." paid for life.
Part 2: Pension products available today—a quick overview
Today, most people's pensions are based on personally accumulated savings (חיסכון אישי צובר), which are affected by contributions, returns and management fees.
Israel has three main products that differ in their legal structure, costs and insurance coverage.
1. Pension fund—the default
The most common product combines savings with built-in insurance coverage for disability and survivors. It operates through mutual guarantee (ערבות הדדית) among members and includes a mechanism that guarantees returns on part of the savings according to the framework set by the state.
- Advantage: Relatively low insuranceA contract under which an insurance company undertakes to compensate the insured in the event of damage in exchange for a periodic payment. cost and a state-guaranteed returnThe profit (or loss) from an investment over a certain period, usually expressed as a percentage of the original amount invested. on part of the money in a comprehensive fund.
- Disadvantage: Rights are determined by rules that may change over time.
- Above the ceiling: Contributions based on a high salary are directed to a "supplementary fund," which has no guaranteed return and invests all the money in the capital market.
2. Bituach Menahalim
A product managed by an insurance company under a personal contract with the saver.
- Advantage: The policy termsThe legal contract that sets out the insurance terms, coverage, and exclusions. are fixed and cannot be changed unilaterally.
- Disadvantage: In the past, some Bituach Menahalim policies included a guaranteed pension conversion factor—a mechanism that determined in advance how the monthly pension would be calculated at retirement. New products no longer provide this benefit, while their management fees have generally remained relatively high compared with pension funds. For many savers, a pension fundA savings vehicle based on mutual risk sharing that includes insurance coverage in cases of disability or death. is therefore considered more cost-effective today.
3. Pension provident fund
A pure retirement savingsA general term for long-term savings products (pension fund, managers’ insurance, or provident fund) intended for retirement. product without built-in insurance coverageThe list of events and damages for which the insured is entitled to compensation..
- Who may find it suitable? People who have insurance coverage elsewhere or prefer to separate savings from insurance.
- The IRA option—personal management: In some funds, you can manage the money independently or through a portfolio manager. This provides full control of investments but requires a high level of involvement and responsibility.
Summary comparison of the three main products
Summary comparison
| Feature | Pension fund | Bituach Menahalim | Pension provident fund |
|---|---|---|---|
| Purpose | Savings plus built-in insurance | Savings plus a personal contract | Savings only |
| Insurance coverage—disability and survivors | Built in | Tailored individually and more expensive | None; purchased separately |
| Guaranteed return | Applies to part of the money | None | None |
| Risk management | Mutual guarantee among members | No mutual guarantee | No mutual guarantee |
| Management fees | Generally relatively low | Generally higher | Generally moderate |
| Flexibility | Relatively limited and subject to the rules | Greater because terms are contractual | High for management, lower for insurance |
| Contribution ceiling | A ceiling applies to the comprehensive fund | No contribution ceiling | No contribution ceiling |
| Personal management—IRA | Not available | Not available | Available, with full control |
| Control of insurance coverage | Limited, with a relatively fixed structure | High | No built-in coverage |
Part 3A: A guide for employees—how much is contributed for you?
For employees, saving is a joint effort by the employee and employer. The legal minimum is 18.5% of salary, divided as follows:
- 6%—the employee's contribution, deducted from net pay
- 6.5%—the employer's contribution to Tagmulim (תגמולים), or benefits
- 6%—the employer's contribution to Pitzuim (פיצויים), or severance pay. In some workplaces the employer contributes only 6%, and in some cases completes the contribution to 8.33%, equivalent to one month's salary for each year of work, either on an ongoing basis or when employment ends.
The statutory default is:
- Employee
- Contributes 6% of salary
- Employer—benefits component
- Contributes 6.5% to the benefits component
- Employer—severance component
- Contributes 6% to the severance component
Some workplaces contribute more than the statutory minimum, by increasing the employer's share, the employee's share or both. It is therefore important to check exactly what is contributed in practice and not assume that everyone saves at the same rate.
Benefits versus severance—what is the difference and why does it matter?
Understanding the purpose of each component helps you manage your savings correctly:
- Benefits component: The core of pension savings. The money is intended for long-term accumulation and conversion into a monthly pension at retirement.
- Severance component: Originally intended to compensate you when employment ends, particularly after dismissal, but in practice it is an integral part of the pension. The money is invested with the other funds, earns returns and directly affects the amount of the pension you will receive.
Part 3B: A guide for self-employed people—the obligation and responsibility
Self-employed people are both their own employee and employer. Since 2017, they have been required to contribute according to income brackets, as of 2026.
Who is required to contribute?
A self-employed person aged 21–60 who has been registered for VAT for at least six months.
Required contributions by income bracket
| Income bracket | Contribution rate |
|---|---|
| On income up to 82,614 NIS per year | 4.45% |
| On the portion of income between 82,615 NIS per year and 165,228 NIS per year | 12.55% |
| Total minimum required annual contribution | 14,044 NIS per year |
- Beyond this amount: There is no obligation, but additional contributions receive significant tax benefits.
Frequently asked questions
What is mutual guarantee?
It is a mechanism in pension funds under which all members insure one another. If there are fewer disability or death claims than expected in a given year, the surplus is distributed among the savers.
How much is contributed for me as an employee?
The statutory minimum is 18.5% of salary: 6% from the employee, 6.5% from the employer for benefits and another 6% from the employer for severance.
I am self-employed. How much must I contribute?
The contribution obligation is tiered: 4.45% on the portion of income up to approximately NIS 82,600 and 12.55% on the portion above that amount, up to a ceiling. As of 2026, the annual minimum is NIS 14,044.
What is the pension-fund contribution ceiling, and what happens above it?
A "comprehensive" pension fund has a monthly contribution ceiling of approximately NIS 4,900 as of 2026 because the state provides a guaranteed return on part of the money. Any amount deposited above that ceiling is automatically directed to a "supplementary," or general, fund in which all the money is invested in the capital market without a state-guaranteed return.
What is a guaranteed pension conversion factor and why is it important?
The pension conversion factor is the number by which your total accumulated savings are divided on the day you retire to determine the monthly pension. A "guaranteed factor," which existed in older Bituach Menahalim policies, ensures that the number will not change even if life expectancy rises. In new products the factor is not fixed, and if life expectancy continues to rise, the monthly pension may shrink.
Who might still benefit from Bituach Menahalim?
Bituach Menahalim may be worthwhile mainly for long-standing savers who hold policies with a guaranteed pension conversion factor that protects them against rising life expectancy, generally policies from before 2013. For new savers, the product is usually more expensive than a pension fund, but it may suit people with very high salaries who want a personal contract that cannot be changed unilaterally through the rules.
What is an IRA and who may find it suitable?
An IRA—Individual Retirement Account—is a track in a provident fund that allows you to manage your pension money independently in the capital market, including buying shares and bonds, instead of selecting an investment track offered by the managing body. It is a powerful tool that provides full control of investments and low costs, but it requires deep financial knowledge, substantial responsibility and active involvement in managing the money.
In summary
Israel's pension system combines a basic state safety net with a modern system of personally accumulated savings. Understanding the product in which you save and carefully monitoring contribution rates are the foundation of financial control. Whether you are an employee who benefits from employer contributions or a self-employed person who manages everything alone, your pension depends on the decisions you make today.