Israeli Pension Advisor

Israeli Pension Advisor

Critical Note

This skill provides general pension INFORMATION. It does not replace consultation with a licensed pension professional. Recommend professional advice for specific decisions, especially: severance over ~100,000 NIS at job change; any decision from age 55 onward; sale of a business, retirement bonus, or inheritance larger than the remaining kitzbah-mezakah pool; cross-border relocation; divorce; and when considering a Tikun 190 deposit (Step 7).

Note for users on the three licensed pension professionals:

• Yoetz pensioni (advisor, Pension Advisory Law 2005) -- fee-only, fiduciary, no commissions.
• Sokhen pensioni (agent) -- commission-paid by funds, sells products.
• Meshavek pensioni (marketer) -- commission-paid but owes a fiduciary duty on advice given.

For unbiased advice ask specifically for a yoetz pensioni.

Instructions

Step 1: Identify Savings Type

| Type | Hebrew | Purpose | Tax Benefit | |------|--------|---------|-------------| | Keren Pensia | keren pensia | Retirement + disability + survivors | Tax credit + deduction | | Bituach Menahalim | bituach menahalim | Retirement (insurance-based, declining for new policies since 2013) | Tax credit + deduction | | Keren Hishtalmut | keren hishtalmut | Medium-term savings (6 years) | Tax-free gains for employees | | Kupat Gemel le-Tagmulim | kupat gemel le-tagmulim | General savings (historical, mostly closed to new deposits since 2008) | Various | | Kupat Gemel le-Hashka'a (IRA) | kupat gemel le-hashka'a | Self-directed retirement savings (since 2016 reform) | Tax on withdrawal at marginal rate, or 15% real-gain if drawn as kitzbah at 60+ | | Kupat Gemel le-Kitzbah (Tikun 190 vehicle) | kupat gemel le-kitzbah | Post-60 tax-shelter (see Step 7) | Full exemption as kitzbah, 15% real-gain as lump sum | | Kranot Neemanot | kranot neemanot | Mutual funds (not pension) | Capital gains tax |

Step 2: Mandatory Pension Contributions

Since 2008, all employees must have pension insurance. Average wage (BL §2 definition, 2026): 13,769 NIS/month. This is the base figure for nearly every pension ceiling. (The CBS "national average wage" published in the press is a different, higher number; do not substitute it.)

Employee contributions:

• Employee: 6% of salary
• Employer pension (tagmulim): 6.5% of salary (includes disability-insurance component up to 2.5%)
• Employer severance (pitzuim): 6% of salary (mandatory minimum); 8.33% under full Section 14 (see Step 6)
• Total mandatory minimum: 18.5% of salary
• Comprehensive pension fund deposit ceiling: 5,645 NIS/month (67,740 NIS/year, 2026) -- 20.5% of 2× average wage. This corresponds to a salary ceiling of 2× avg wage = 27,538 NIS/month. Contributions on salary above 27,538 NIS route to a supplementary fund (keren mashlima) or kupat gemel le-tagmulim.

Pension contribution timing for new employees (Mandatory Pension Expansion Order):

• Employee with existing pension at intake: contributions begin Day 1, paid retroactively after 3 months of work or end of tax year (whichever first).
• Employee without existing pension: contributions begin only AFTER 6 months of work, going forward. The first 6 months are NOT covered retroactively.

Self-employed mandatory pension (Mandatory Pension for the Self-Employed Law, 2016):

• 4.45% on net taxable income up to 6,884.50 NIS/month (half average wage)
• 12.55% on income from 6,884.50 to 13,769 NIS/month (full average wage)
• No obligation on income above full average wage
• Maximum annual mandatory obligation: ~14,044 NIS
• Obligation applies between age 21 and legal retirement age
• The first calendar year of עוסק activity is exempt
• Obligation is on net taxable income (after deductions), not gross revenue. עוסק פטור and עוסק מורשה are both covered.

Step 3: Keren Hishtalmut (Training Fund)

The most popular Israeli savings vehicle:

For employees:

• Employee contribution: Up to 2.5% of salary
• Employer contribution: Up to 7.5% of salary (total 10% of salary)
• Tax-free salary ceiling for employer contribution: 15,712 NIS/month (188,544 NIS/year, 2026). At the ceiling the combined contribution is 1,571 NIS/month.
• Employer contribution on the portion of salary above 15,712 NIS becomes taxable income to the employee, even though it still sits in the fund.
• Withdrawal after 6 years: Tax-free on gains (unique Israeli benefit)
• Withdrawal after 3 years: For accredited training only, with documentation

For self-employed (two separate ceilings):

• Tax deduction from income: Up to 13,203 NIS/year (4.5% of income up to 293,397 NIS)
• Profit-exempt ceiling: 20,566 NIS/year (gains on deposits up to this amount are tax-free after 6 years). The gap between the two ceilings can be deposited but yields no income-tax deduction.

Note: In September 2024 the Treasury proposed eliminating keren hishtalmut tax-free status for gains beyond year 6. As of May 2026, no such change has been enacted; the benefit remains in place. Monitor for renewed legislative proposals before assuming long-term stability.

Step 4: Tax Benefits Summary

For employees:

• Pension tax credit: 35% credit on employee contributions up to 679 NIS/month (7% of qualifying salary 9,700 NIS, 2026). Maximum credit ~2,852 NIS/year.
• Contributions above 679 NIS/month earn deduction, not credit, up to the further deduction ceiling.
• Employer exclusion: Employer's pension contribution is not taxed as employee income (combined up to 7.5% of salary).

For self-employed:

• Tax credit (35%) on contributions up to 12,804 NIS/year (5.5% bracket)
• Tax deduction on contributions up to additional 25,608 NIS/year (11% bracket)
• Combined maximum deductible: 38,412 NIS/year (16.5% of qualifying income up to 232,800 NIS/year, ~19,400 NIS/month)

Pension payout (at retirement):

• Monthly pension partially tax-exempt under Tikun 190 (Amendment 190 to the Income Tax Ordinance, 2012)
• 2026 exemption rate: 57.5%; rising to 62.5% in 2027 and 67% from 2028 (schedule on track as of 2026)
• Tax-free pension amount: up to 5,422 NIS/month (2026)
• Qualifying pension threshold (kitzbah mezakah): 9,430 NIS/month
• Lifetime tax-exempt capital pool (kibua zechuyot / yitrat hahon haptura) = 180 times the monthly tax-exempt pension = 180 × (57.5% × 9,430) = 180 × 5,422 ≈ 976,000 NIS for a worker retiring in 2026 (it grows as the exemption rate climbs toward 67% by 2028). Eaten by severance withdrawn under heichum kitzbah at 1.35x per shekel (see Step 6).

Step 5: Withdrawal Rules

• Pension: Men age 67; women in 2026 age 63 years 3 months, rising 3-4 months per year to 65 by 2032 per the Retirement Age Amendment (2021). Exact age depends on year of birth; for women born 1960-1965 the per-cohort table must be checked, not a flat number.
• Three distinct retirement ages in Israeli law: gil zakaut le-kitzbah (60+, early access with conditions); gil prishah (67/63+); gil prishah chovah (67 for both genders, the maximum age at which an employer can require retirement). Do not conflate.
• Early pension withdrawal: 35% withholding on tagmulim or marginal rate, whichever higher. Early withdrawal of severance beyond the exempt ceiling is taxed at the marginal rate (up to 47%, plus surtax). Exceptions for disability, low household income, or terminal illness can reduce or remove the tax.
• Keren hishtalmut: After 6 years (tax-free on gains), or 3 years (accredited training only, with documentation). Early withdrawal taxes the GAINS at the marginal rate, not the full balance.
• Severance (pitzuim): On termination, subject to the Section 14 arrangement and the Form 161 process. Tax-exempt up to 13,750 NIS per year of service. See Step 6 in full before any withdrawal decision.
• Disability: New comprehensive pension funds under the unified regulations (takanon achid, June 2018) pay up to 75% of insured salary for disability. Bituach Leumi nechut klalit may overlap; offset rules apply per the takanon achid. The disability premium is built into the 6.5% employer tagmulim, up to 2.5% of salary; if the employee opts out of disability coverage that premium is added to the savings component.
• Survivors (sha'arim) under takanon achid for an ACTIVE member: spouse 60% of insured salary; orphans combined 40% of insured salary (divided among children under 21, extended to 24 during military / national / regular national service); dependent parent 20%; total cap 100% of insured salary. For an INACTIVE member, the benefit is calculated from the accumulated balance using actuarial coefficients, not fixed percentages. Bituach Leumi shaerim STACKS on top of this; it is not an offset.
• Nayadut (fund transfer): No transfer fees. The new fund must complete the transfer within 10 business days of receiving the signed request. Vetek (seniority) is preserved for the keren hishtalmut 6-year lock. Transferring from a pre-2013 bituach menahalim to a pensia fund forfeits guaranteed annuity factors (mekadem hamara mubatach) on those balances; check before transferring.

Step 6: Severance at Termination (Form 161)

The single most consequential decision at job change. Mistakes here cost tens of thousands of NIS in future tax.

Heichum kitzbah: the critical interaction users miss.

• Pension payouts at retirement are partially tax-exempt (57.5% of kitzbah mezakah in 2026, rising to 67% by 2028).
• Each shekel of tax-exempt severance withdrawn WITHIN 32 YEARS BEFORE legal retirement age reduces the lifetime kitzbah-mezakah tax-exempt pool by 1.35 shekels. Severance withdrawn MORE than 32 years before retirement does NOT reduce the pool, so for very young workers (under ~30) the heichum penalty is zero.
• The 1.35x applies only to the tax-exempt portion of severance (up to 13,750 NIS/year of service). Severance drawn above the exemption ceiling is taxed marginally at the time of withdrawal and does not borrow from the kitzbah pool.
• Worked example: a 40-year-old (27 years to retirement at 67) withdrawing 50,000 NIS of tax-exempt severance loses 50,000 × 1.35 = 67,500 NIS of future tax-exempt pension allowance. A 28-year-old (39 years to retirement) doing the same loses zero (outside the 32-year window).

Section 14 (4 real-world sub-cases, per the אישור כללי of 30 June 1998 and amendments):

1. Full 8.33% from day 1 on the full salary -- the textbook case; employer fully released from supplemental severance.
2. Section 14 on part of salary only (e.g. base, not bonus); the unfunded portion stays under the general law, calculated at final salary on termination.
3. Section 14 starting after a delay (no pension for the first months); employer owes the gap for the pre-Section-14 period at FINAL salary times years, indexed -- often the largest source of שלמת פיצויים claims.
4. Collective-agreement Section 14 (industry or Histadrut); bonuses, retroactive raises, and certain allowances may sit outside the arrangement and trigger residual severance liability.

The 2.33% gap arises only in case 1 if the employer chose to contribute the minimum 6% rather than the full 8.33% -- the employer owes the difference on termination at final salary.

Forms involved (Form 161 was redesigned January 2024 as a single unified form):

• Form 161 -- Part A (Employer Notice) -- Filled by the employer at termination, declaring employee details, employment period, salary, Section 14 status, and severance amounts paid out and accumulated in funds.
• Form 161 -- Part B (Employee Notice) -- Filled by the employee declaring intent for each component of severance: cash withdrawal (subject to heichum kitzbah), rezef-kitzbah (pension continuity), rezef-pitzuyim (severance continuity), or prisat pituyim (spread tax over up to 6 years). Part B REPLACES the old standalone Form 161א as of January 2024.
• Form 161 -- Part C -- Employer's calculation worksheet and instructions to the fund.
• Default if Part B is not returned within ~10 business days of receipt: rezef-kitzbah (pension continuity), NOT auto-payout. The Tax Authority treats a non-responding employee as having elected pension continuity if all severance funds are in annuity-eligible accounts. This is the opposite of the pre-2024 rule.
• Form 161ג (161C) -- Filed to REVOKE a prior rezef-pitzuyim election within 2 years of termination (the "bittul pituyim" window). Submitted directly to the Tax Authority.
• Form 161ד (161D) -- Filed at retirement to settle the lifetime kitzbah-mezakah exemption calculation against severance the employee took during their career (kibu'a zechuyot).

Three options at termination (in order of common preference):

1. Rezef zechuyot (continuity) -- Leave severance in the kupah, no tax event, no impact on future kitzbah-mezakah. Default best for younger workers with future retirement income. CAVEAT: only works cleanly if the new employer's severance contributions land in the same continuity arrangement; if the new employer has different terms or no pension yet, the rezef may not actualize and the severance sits frozen.
2. Bittul pituyim (cancellation) -- If severance was already drawn within the past 2 years, the employee can return it to the kupah with interest and indexation, with pakid shuma (assessment officer) approval, to restore the kitzbah pool. The original termination tax assessment is re-opened. Filed via Form 161ג.
3. Prisat pituyim (spreading) -- Spread severance taxation across up to 6 tax years to lower the marginal rate. Rule of thumb: 1 spread-year per 4 years of seniority, capped at 6. Only the taxable portion (above the petur ceiling) is spread; backward spreading exists but is rare and requires specific approval.

Step 7: Tikun 190 Deposits (the post-60 tax shelter)

Tikun 190 of the Income Tax Ordinance (2012) lets people aged 60+ who already draw a qualifying pension (kitzbah mezakah) at least the minimum threshold (approximately 5,306 NIS/month in 2026) deposit lump sums into a kupat gemel le-kitzbah with a dramatically improved tax treatment.

Why it matters: Tikun 190 deposits are THE standard tax-shelter tool at retirement age for severance, retirement bonuses, sale of a business, inheritance, and surplus liquid savings. A retiree depositing 1M NIS of an inheritance into a kupat gemel le-kitzbah pays 15% real-gain tax on lump-sum withdrawal (vs marginal up to 47% in a regular brokerage account), and pays zero tax if the deposit is drawn down as a monthly kitzbah.

Mechanics:

• Qualifying pension prerequisite: the depositor must already receive a kitzbah of at least the minimum threshold (BL old-age pension counts; private pension counts; a partial kitzbah from a former employer counts). Without it, the deposit is treated as a normal kupat gemel le-tagmulim and the Tikun 190 benefit does not apply.
• Age 60+ at deposit time.
• No annual deposit cap, no lifetime cap (the benefit is on the tax treatment, not a contribution ceiling).
• Lock-up: funds must remain at least until the depositor is eligible for kitzbah (essentially immediately, given the prerequisite).
• Withdrawal as kitzbah: monthly payments fully exempt from income tax for life.
• Withdrawal as lump sum: 15% tax on the real (CPI-adjusted) gain only; principal is not taxed.
• Inheritance: on the depositor's death, the funds pass to designated beneficiaries; their tax treatment depends on the beneficiary's age and choice (kitzbah vs lump sum).

Common confusion: "Tikun 190" is used colloquially to refer to BOTH this 60+ deposit benefit AND the parallel reform of severance / kitzbah taxation under the same amendment. The two have nothing operational in common. When a client says "Tikun 190" ask which they mean.

Triggers to recommend a yoetz pensioni consultation: any planned Tikun 190 deposit over ~250,000 NIS, any consideration of withdrawing the deposit before 5 years, and any depo

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Source & license

This open-source skill is cataloged on AgentStack and links to its original source — we do not rehost the code.

• Author: skills-il
• Source: skills-il/tax-and-finance
• License: MIT

Install and usage instructions live in the source repository linked above.