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The Pension Market in Israel - Ongoing Progress

The Pension Market in Israel - Ongoing Progress. OECD, Insurance and Private Pension Committee – Working Party on Private Pensions, 16th session, Paris, 11-12 December 2006. Lavi Schiffenbauer – Head of Information and Development Department.

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The Pension Market in Israel - Ongoing Progress

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  1. The Pension Market in Israel - Ongoing Progress OECD, Insurance and Private Pension Committee – Working Party on Private Pensions, 16th session, Paris, 11-12 December 2006 Lavi Schiffenbauer – Head of Information and Development Department Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  2. Overview of the Topics • The publics’ financial asset portfolio • Insurance and LT savings – general information • Type of pension funds in Israel • Basic elements of pension coverage in Israel • Pension market overview • Israeli pension system – selected indicators • Israel vis-à-vis OECD countries – selected comparison indicators • Conclusion Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  3. Entities Supervised by the CMISD • 439 Provident funds • 22 “New” pension funds • 18 “Old” pension funds • 26 (Life and Non-life) Insurance companies Total Assets (September 2006): NIS 626 billions ($146 billions) Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  4. The Public’s Financial Assets Portfolio, September 2006 * Contractual Savings Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  5. Insurance & Long Term Savings -General information ($ billions) Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  6. Type of Pension Funds in Israel • New pension funds – Every pension plan established after 1994. A hybrid of defined-contribution (DC), group insurance and defined-benefit (DB) elements • Old pension funds – Private sector defined-benefit pension plans established before 1995 Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  7. Basic Elements of Pension Coverage in Israel 1st Pillar • Compulsory, defined benefit old-age, disability and survivors pensions • Providing a very basic level of benefits • Financed on a pay-as-you-go basis from current contributions of all workers and employers • Managed by a government agency (The National Insurance Institute of Israel) Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  8. Basic Elements of Pension Coverage in Israel 2nd Pillar • Voluntary pension plans and insurance contracts, providing old-age, disability and survivors pensions on a hybrid DB/DC/group insurance basis • Fully funded from contributions of insured members* and their employers • Eligible for tax relief on contributions and investment income and for some investment subsidies • Managed by private sector companies * Up to 7.5% of salary Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  9. Basic Elements of Pension Coverage in Israel 3rd Pillar • Voluntary long term savings vehicles • Ineligible for investment subsidies and tax relief • Managed by private sector companies Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  10. Pension Market Overview • 22 New pension funds. Mostly owned by insurance companies • $11.8 billions (at the end of Sep. 2006) • 21.0% asset growth (in $ terms) between Dec. 2005 and Sep. 2006 • HHI (at the end of Dec. 2005): 0.28 • 18 Old pension funds (closed to new members) • $33.2 billions (at the end of Sep. 2006) • 7.3% asset growth (in $ terms) between Dec. 2005 and Sep. 2006 • Total assets of both pension funds types: 32% of the GDP Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  11. Israeli Pension System – Selected Indicators • Pension funds assets • Distribution of selected items of the pension funds’ asset portfolio • Distribution of selected items of the contractual savings institutions’ asset portfolio • Annual rate of return for members • HHI by active members and total assets Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  12. Pension Funds Assets, 1999 – 10/2006 A rapidly growing market Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  13. Distribution of Selected Items of the Pension Funds’ Asset Portfolio, in %, 1998 – 09/2006 Effect of increased exposure to capital markets Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  14. Distribution of Selected Items of the Contractual Savings Institutions’ Asset Portfolio, in % ,1996 – 09/2006 … and increasing diversification Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  15. Annual Rate of Return for Members, in %, 1999-10/2006 High returns, mainly due to the development of the capital markets Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  16. HHI by Active Members and Total Assets in the New Pension Funds, 2000-2005 A trend of reducing concentration and increasing competition Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  17. Israel vis-à-vis OECD Countries – Selected Comparison Indicators • Structure of assets of pension funds • Population of 65+ year olds as % of total population • Pension funds assets as % of GDP • Market capitalization as % of GDP and ratio of pension plans and life insurance as % of GDP • Population of 65+ year old as % of total population and ratio of pension plans and life insurance as% of GDP Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  18. Structure of Assets of Pension funds, Israel and OECD Countries, 2005 Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  19. Population of 65+ Year Olds % of Total Population, Israel and the OECD Countries, 2005 Israel – Relatively young population… Source: The World Bank Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  20. Pension Funds Assets in Israel and the OECD Countries, % of GDP, 2005 …but advanced pension market Source: OECD and CMISD Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  21. Market Capitalization as % of GDP and Ratio of Pension Plans and Life Insurance as % GDP, Israel and Selected OECD Countries, 2005 High correlation between developed contractual savings market and developed capital market Source: OECD and The World Bank Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  22. Population of 65+ Year Olds as % of Total Population and Ratio of Pension Plans and Life Insurance as % of GDP, Israel and Selected OECD Countries, 2005 Israel - Relatively young population but considerable contractual savings market Source: OECD and The World Bank Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

  23. Conclusion • High growth rates of the long-term saving plans, especially pension markets • Increasing investment flexibility help to improve the Israeli capital markets • Increase in competition and reduction in concentration • The Pension market in Israel is in an ongoing progress Capital Market, Insurance and Savings Division, Ministry of Finance, State of Israel

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