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Abstract: Israel's pension system has changed drastically since the mid-1990s, when it faced an underfunding crisis. The transition to defined contribution plans permitted a wider range of investments and shifted the burden of income-replacement from the government to the individual pension plan participant. This shift required increased protections for pension plans, which led to the creation of the Capital Market Insurance and Savings Division (CMISD) to oversee and regulate pension management entities. In comparison to post-Soviet nations that experienced similar transitions from socialist to market economies, Israel's pension system is significantly healthier and more regulated. However, the CMISD must enact measures to oversee the transition of funds from "old" to "new" pensions, reduce or eliminate the mandatory 30% investment in government bonds, and increase the accountability requirements for pension management entities and the organization itself.
I. Introduction
In unprecedented fashion, the Israeli government has pursued a sweeping overhaul of its pension system while simultaneously shifting its socialist economy to a free market system. Pension reform came just before the nation faced an impending funding crisis, which threatened the financial security of an entire generation of Israelis. By releasing its grip on the pension system, the Israeli government increased the ability of Israelis to achieve income-replacement on retirement by permitting outbound investments, offering from a greater range of plan options, and introducing strict pension protections overseen by the Capital Market, Insurance and Savings Division (CMISD). Like other nations with well-regulated private pension systems, CMISD officials continuously consider potential revisions to enhance the profitability, stability, and protection of Israel's pension system.
This comment will review the history of Israeli pension reform, compare Israel's progress to several post-Soviet nations that experienced similar economic transformations, review areas in need of further consideration, and suggest modifications to the current system. Part II will provide a primer on pension systems in order to highlight the prevailing pension plans that dominated the pre and post-reform era in Israel. Part Ill will describe the early history of Israel's pension system, including the struggles that led to its reform, while Part IV will explain how the Israeli government reformed the pension system. section V will introduce some of the more recent additions to Israeli pension programming. Part VI compares Israeli pension developments to...