Tehila Kalagy

This study examines the effectiveness of pension tax benefits in Israel, in light of the mandatory pension application among OECD countries. Using a random sample of350,000 employees for a period of 6 years )2009–2014(, we found that 47% of the employees are not affected by the current tax benefits scheme. Specifically, all employees in the first to fourth income deciles, and about 55% of employees in the fifth decile, do not enjoy pension tax benefits whatsoever. Furthermore, we have found that, in accordance with the current system of deposits and benefits, the expected income at retirement would result in the reduction of three to four income deciles below the poverty line. Based on the findings, we suggest an alternative mechanism for pension tax benefits designed to provide equal pension benefits to all employees, lead to an increase in occupational pensions and decrease in poverty at retirement – all without increasing the state budget. In the proposedmechanism, the benefit to employees will not be in the form of current tax savings but in the form of an increase in pension savings. Rather than tax deductions in the present, these amounts will be deposited into a state-handled savings plan for all employees.