If you want to retire with a “normal” amount of pension, you need to be sure you are utilizing to the maximum the options available to you.
In order to do this you must first understand the makeup of pension plans, because you might very well be on your way of stepping into a mis sold sipp. There are basically three groups of pension plans for salaried employees:
1. Those who are insured via the mandatory pension plan law (the rates effective in 2011 are 3.33% from each the employee and the employer and an additional 3.34% from the employer for severance pay). These rates will be updated anually over the next few years until they max out at 5.5% each employee and employer plus an additional 6.5% severance pay (employer).
2. Those who are insured in older pension plans before the madatory pension plan came into effect. These employees for the most part have a 5% both employee and employer contributions and 8.33% severance pay (employer).
3. Public sector employees have totally different plans, usually with far favorable terms than are available via the private sector. This is due to heavy involvement by worker’s unions and are embedded in contractual collective agreements signed by the ministry of finance. we’ll not be discussing this group here at all.
Of the first two groups, in the private sector, there can be many itemized portions of your gross pay that are not taken into account for pension purposes. This is because that in most instances the pension is configured from the base salary only. So, if you receive overtime pay, travel expenses or anything else for that matter other than your base pay, you should read on. All you need to do is look at the informative information which shows up on your payslip. Look for “bruto pensiya” (gross pay for pension purposes). This amount will tell you from what gross amount your pension is configured. If this amount is equal to your total gross pay for the month, you’re good. If this amount is lower than your monthly gross pay, you can raise your contribution to a max of 7% privately. If you do this at a relatively young age it will be very significant towards your future income from your pension when you retire. You will need to contact your employer’s insurance agent who handles the policies or the pension fund.
Moshe Egel-Tal, CSPP
Israpay “making payroll simple”
www.israpay.com
moshe.israpay@gmail.com
