All means lead towards pension savings
Provident fund for rewards – the pension savings instrument for employees and the self-employed
Savings in provident funds works according to the principle of regular accumulation of a part of the member’s monthly income until retirement age. Time to retire? You can receive the money in one of the following ways: a fixed monthly allowance that will replace your monthly salary, or a one-time amount that is determined by the type of fund and the savings period.
And now let’s dive a little deeper…
We explained the principle of the provident fund: setting aside a portion of the monthly income for the purpose of saving for retirement. The accumulated money in the fund is managed by an authorized company on behalf of the Ministry of Finance. Hence, the savings in the fund can generate returns that result from investing in the capital market, and the profits are tax-exempt.
What happens at the end of the savings period, i.e. retirement age? The money accumulated for you in the fund as well as the returns obtained, minus the management fees, will be transferred to your account as a monthly allowance. The deadlines and rules for depositing the funds and their rate, as well as for withdrawing them, are determined by law. Accordingly, there are certain circumstances in which the law allows the withdrawal of funds also as a lump sum.
Each provident fund investment track is subject to your choice according to your considerations. In addition, you can switch between tracks at any time freely, without the switch involving any cost and without infringing your rights. However, any decision on such a transition should be made in a considered manner, after thoroughly examining all options.
Employed members benefit from their employer’s participation, and the tax benefits are everyone’s bonus
As of 2008, a mandatory pension law obliges employers in Israel to provide their employees with pension savings. The choice of the savings instrument (such as a provident fund) and its manufacturer is up to the employee. The employer is obliged to deposit the amounts in the program every month according to the law.
If an employee has chosen a provident fund – the employer will make a monthly deposit to the provident fund that they opened for the employee, which includes both their own share and the employee’s share that is deducted from their salary.
Self-employed members – receive tax benefits
As a self-employed person who deposits into pension savings plans, you deserve to receive tax benefits from the state at the end of the year. The contributions to the plan are calculated for a whole year – from January 1 to December 31 according to qualifying annual income. It is possible to make one-time deposits for the whole year or monthly. These tax benefits are given to various programs, including provident funds. In order to benefit from the benefits in full, the maximum amount must be deposited to correspond with the employee’s income.