Every employed person in Israel participates in a mandatory pension savings scheme, and most also benefit from an additional tax-advantaged savings fund called a Keren Hishtalmut. For new Olim joining the Israeli workforce, these two structures can feel confusing at first, particularly if you are used to very different pension arrangements in your home country. This guide explains how both work, what you are entitled to, and how to make the most of them from your first job in Israel.
Mandatory Pension in Israel: The Keren Pansiya
Israel has required employers to provide pension coverage for employees since 2008, with the scheme expanded to near-universal coverage by 2017. A keren pansiya (pension fund) is a long-term savings product that accumulates contributions from both you and your employer throughout your working life, and pays out a monthly income from retirement age.
The minimum contribution rates are set by law. Employees contribute at least 6% of their salary to their pension fund, and employers contribute at least 6.5%. Employers are also required to contribute a further 6% of salary for disability insurance within the pension framework, bringing the total minimum mandatory contribution to around 18.5% of salary. Many employers and employment agreements provide higher rates than the legal minimum.
Pension contributions are made from gross salary. The employee’s portion is deducted from your paycheck before you receive it, while the employer’s share is paid on top of your salary. Both portions go into your personal pension fund account, which is yours and moves with you if you change employers. You choose the pension fund from a list of approved providers. If you do not choose, your employer selects one for you.
Choosing a Pension Fund
Israeli pension funds (kranot pansiya) are managed by financial institutions and regulated by the Capital Market, Insurance and Savings Authority. The main types are comprehensive pension funds (keren pansiya mekaifa), provident funds (kupat gemel), and managers’ insurance policies (bituach menahalim). For most employees, a comprehensive pension fund is the most cost-effective option. Management fees vary between funds and are capped by regulation, but they still matter significantly over a long career. New Olim can ask their employer’s HR or payroll team which fund is recommended, or consult an independent pension adviser (yoetz pensioni) for personalised guidance. Advisers certified in pension planning are licensed by the Capital Market Authority.
What Is a Keren Hishtalmut?
A keren hishtalmut (literally “continuing education fund”) is a short to medium-term savings vehicle unique to Israel. Despite the name, it is not restricted to education use and can be withdrawn as cash after a qualifying period. It is one of the most tax-efficient savings tools available to Israeli employees.
Employers contribute 7.5% of your salary to the fund, and employees contribute 2.5%. For salaried employees, both contributions are tax-free up to a salary ceiling (currently approximately NIS 15,712 per month). This means that on a salary up to that level, the full 10% going into your Keren Hishtalmut every month is tax-free for both parties.
The minimum lock-in period before a tax-free withdrawal is 6 years. After 6 years, you can withdraw the entire accumulated balance, including investment returns, completely free of income tax and capital gains tax. This makes the Keren Hishtalmut an exceptionally attractive savings vehicle. Many Olim choose to leave the fund untouched well past the 6-year mark to continue growing the tax-sheltered investment. Between years 3 and 6, early withdrawal for approved purposes such as education costs is permitted under certain conditions.
Self-Employed Olim and Pension Planning
Self-employed individuals (osek murshe or osek patur) are not automatically enrolled in any pension fund. Since 2017, they are required by law to make pension contributions independently. The minimum contribution is 4.45% of income up to the average wage, and 12.55% on income between the average wage and a higher ceiling. Self-employed individuals can also open a Keren Hishtalmut independently. Contributions to both the pension fund and the Keren Hishtalmut carry significant tax deduction benefits, making them worth setting up as early as possible. An Israeli accountant (roeh heshbon) can help structure these contributions in the most tax-efficient way.
What About Your Foreign Pension?
If you built up pension savings in your home country before Aliyah, those savings remain in your home country’s pension system under the rules of that system. Israel does not absorb foreign pension funds. However, Israel has bilateral social security agreements with many countries, including the United States, the United Kingdom, Canada, France, and Germany, which allow contribution periods in one country to count toward pension eligibility in the other. If you expect to receive a foreign state pension in retirement, check whether the relevant bilateral agreement applies to your situation. Pension income received from abroad during the 10-year tax exemption period is generally exempt from Israeli income tax, which is a significant benefit for Olim receiving foreign pension income while still in the exemption window.
Frequently Asked Questions
What is the difference between a keren pansiya and a keren hishtalmut?
A keren pansiya is a long-term pension fund, with contributions locked in until retirement age. A keren hishtalmut is a medium-term savings fund with contributions locked in for 6 years, after which the full balance can be withdrawn tax-free. Both involve contributions from employer and employee, but the keren hishtalmut is more flexible, has different contribution rates, and is often seen as a more accessible tax-sheltered savings vehicle that sits alongside the pension fund.
Is my employer required to contribute to my pension in Israel?
Yes. Israeli law requires employers to enrol employees in a pension fund and contribute a minimum of 6.5% of salary to that fund, plus an additional 6% for disability insurance within the pension framework. Failure to do so is a legal violation. If you start a new job and your employer has not set up pension arrangements within the first few months, raise it with HR or with the Ministry of Economy and Industry’s labour relations department.
Can I access my keren hishtalmut before 6 years?
A tax-free withdrawal from a keren hishtalmut is only available after 6 years. Early withdrawal before 6 years is possible in certain defined circumstances (such as education costs after year 3) but the withdrawal becomes taxable. If you withdraw before 6 years without a qualifying reason, you owe income tax on the gains. Most financial advisers recommend keeping the fund intact for the full 6 years to preserve the tax benefit.
How do I choose a pension fund as a new employee in Israel?
Your employer’s HR or payroll team will give you a list of approved pension fund providers to choose from. Look at the annual management fees, which can vary between funds and directly affect your long-term returns, the investment track options, and the disability and life insurance coverage included. If you are unsure, consult a licensed independent pension adviser (yoetz pensioni), who is legally required to give unbiased advice. A consultation typically costs NIS 300 to 700 but can be well worth it when starting your Israeli pension savings from scratch.
Does the Israeli pension system apply to part-time and temporary employees?
Yes. Pension coverage is mandatory for all employees, including part-time workers, after a short qualifying period. For new employees, the employer is required to start pension contributions after 3 months of employment, or earlier if the employee was previously covered by another Israeli pension fund. The 3-month delay applies only to the start of contributions, not to your eligibility for other employment rights.
Is my foreign pension income taxed in Israel after Aliyah?
During the 10-year tax exemption period, pension income received from foreign sources is generally exempt from Israeli income tax. This applies to both state pensions and private pension fund distributions from abroad. Once the exemption period ends, foreign pension income becomes subject to Israeli income tax in the normal way. Tax treaties between Israel and your home country may also affect how that income is taxed. Consult an Israeli tax adviser for your specific situation.