What is a pension fund?
The most common pension savings device today. The pension fund allows an employed/self-employed colleague to save for retirement in order to generate a future old-age pension for himself. The goal of the fund is to guarantee the member a monthly old-age pension at retirement age, while protecting the member and his family unit throughout his membership in the fund from cases of disability and death.
Important highlights for managing pension funds
- The pension fund is subject to uniform regulations for all the members of the fund and is based on a mutual guarantee, in full compliance with the regulations.
- Pension funds can be transferred from one fund to another, without prejudice to the existing qualification period and existing rights.
- You can switch between investment tracks in the pension funds, at no cost and without harming the member.
- About 30% of the pension fund’s assets receive a guaranteed return (4.86% per year), independent of the capital market.
- Every employer is obliged to deposit the employee into the pension fund or another pension instrument, in accordance with the Mandatory Pension Law, enacted in 2008. New employees without an existing pension fund – mandatory only after 6 months, employees with an existing pension fund – after 3 months, retroactive from the first day of their employment.
- The comprehensive pension fund is the most common fund. The fund includes survivor coverage, in the event of the member’s death, and disability coverage, in the event that he becomes disabled for any reason, which is also called coverage for loss of working capacity.
Lamda’s tips for pension funds
- In cases where the member has no balances, according to the law, it is possible to waive coverage of balances, thus saving hundreds of thousands of shekels throughout the savings period in the fund.
- The pension fund is the largest asset over the years in a family unit (yes, yes, in most cases the amount of assets in the pension fund, with two spouses, will be worth much more than the property you live in).
- It is important to check and update the fund on an annual basis with a pension expert. Remember not to be afraid of messing with the pension fund, studies show that changing investment mixes can increase the pension over the years by an average of 27%.
- Expand the insurance coverage in the pension fund through an insurance umbrella.
- Do not withdraw compensation funds from the pension fund within 32 years before retirement, this type of withdrawal may cause irreversible damage when receiving the old age pension.
- The younger we are, it is recommended to choose investment paths with a higher risk level in order to maximize the savings in the long-term pension fund:
- In the pension fund, the investment is made according to the Chilean model, which classifies the members in the investment tracks according to their age, while maintaining the aforementioned rule. We usually avoid investing the pension money in stock tracks, thinking that we are “risking” our pension . This assumption is incorrect, since by investing the funds in a stock route, the future monthly allowance can be increased by tens of percent.
- Today the state encourages the public to save in a pension fund and allows extensions to cover disability (as of 06/2018), take advantage of these benefits and check the option of purchasing coverage for double disability and developing disability.