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Israel Pension Guide — Mandatory Pension, Severance & Keren Hishtalmut 2026

Israel has a mandatory pension system that has been in place since 2008. All employers must enroll employees in a pension fund or manager's insurance policy (bitnua). The system includes three main components: pension savings for retirement, severance pay (pishtei piturim) for employee protection, and Keren Hishtalmut (advanced training fund) as a tax-advantaged savings vehicle. Understanding these components is crucial for both employers and employees planning for retirement in Israel.

Mandatory Pension Contributions (Since 2008)

Following the 2008 mandatory pension law, every employer in Israel must provide a pension plan for all employees aged 21 and older. The minimum required contribution is 6.5% from the employer and 6% from the employee, totaling 12.5% of salary. This minimum applies to salaries up to the ceiling (approximately ₪29,000 per month). The contributions fund a pension plan (kupat gemel) that pays a monthly annuity upon retirement. The 12.5% minimum is divided between the pension fund and severance fund components according to the chosen pension arrangement.

Default Contribution Structure

In practice, the most common default arrangement extends well beyond the minimum. The standard structure is 7% employee contribution, 7% employer contribution for pension savings, plus 2.5% employer contribution for severance pay (manager's insurance — bitnua). This brings the total employer contribution to 9.5% (7% + 2.5%) and the total combined contribution to 17.5% of salary. Many collective agreements and employment contracts provide for higher employer contributions, particularly for long-serving employees. The employer contribution for pension savings often increases with seniority, sometimes reaching 8-10% after several years of employment.

Severance Pay (Pishtei Piturim)

Under Israeli labor law, employees who are terminated or resign under certain circumstances are entitled to severance pay of one month's salary per year of employment. To fund this obligation, employers typically contribute 2.5% of salary into a manager's insurance policy (bitnua) designated for severance. These accumulated funds serve as the financial backing for the severance obligation. If the employee is dismissed, the severance funds are paid out. If the employee resigns voluntarily, the funds may remain in the policy and be paid upon retirement, effectively serving as additional pension savings. Employees who have accumulated significant tenure may be entitled to additional severance beyond what the 2.5% contribution covers.

Keren Hishtalmut (Advanced Training Fund)

Keren Hishtalmut is a unique Israeli savings vehicle that offers significant tax advantages. The employee contributes up to 2.5% of salary and the employer contributes up to 7.5%, with the combined employer contribution treated as a tax-deductible business expense. The employee's contributions and the employer's contributions (up to the ceiling) are tax-exempt upon withdrawal (subject to holding period rules). Typically, funds can be withdrawn after 6 years (or upon retirement) with full tax benefits. If withdrawn earlier, gains may be subject to tax. The employer contribution ceiling for Keren Hishtalmut is approximately ₪19,032 per year (2026). Not all employers offer Keren Hishtalmut — it is commonly provided through collective agreements or as an employee benefit.

Retirement Age

The official retirement age in Israel is 67 for men and gradually rising from 62 to 65 for women (currently 62-65, transitioning to a uniform 65 over the coming years). Old-age pension from Bituach Leumi begins at these ages. Private pension funds typically allow withdrawals from age 60 (or earlier under certain conditions). Early retirement may result in reduced pension benefits. The pension fund pays a monthly annuity calculated based on accumulated savings, life expectancy, and the chosen payout option. Many retirees choose to receive a combination of annuity and lump sum.

Choosing Between Pension Products

Israel offers several pension savings vehicles. Kupat Gemel (pension fund) is the traditional defined-benefit or defined-contribution fund. Manager's insurance (Bitnua) is an insurance policy combining savings with life insurance coverage. Keren Hishtalmut is a pure savings fund focused on employee training and savings, with more flexible withdrawal options. Many employers offer a combination: a pension fund for the mandatory component and Keren Hishtalmut as an additional benefit. The choice depends on factors including age, risk tolerance, desired retirement age, and the specific terms offered by the employer. Financial advisors typically recommend maximizing employer contributions to all available vehicles before making additional voluntary savings.

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