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National Insurance Institute Warns of Potential Bankruptcy as Early as 2036

Even before accounting for war damages, Israel’s National Insurance Institute is expected to operate in a deficit starting in 2030 | Director General Zvi Cohen: “Citizens of Israel should live knowing that there is a social body that is there for them”

סניף המוסד לביטוח לאומי בחולון (צילום ארכיון: shutterstock)
Offices of the National Insurance Institute. (Photo: Shutterstock)
By Tal Kaspin

The Israeli National Insurance institution, known in Hebrew as Bituach Leumi, estimates that as early as 2036, the system will not be able to pay all its allowances and dues to the Israeli public. This is eight years earlier than the original estimate, and does not include the effects of the war, which could further shorten the path to bankruptcy.

In response to this assessment, Labor Minister Yoav Ben-Tzur who is responsible for the institution, said that he convened a special committee and pledged that the damage to allowances would not be on his watch. In the past, various proposals were made to deal with future actuarial deficit: obtaining a better return than the one paid by the Ministry of Finance, participation of the state in paying insurance, raising the tax paid by employers, and raising the retirement age—a step that was taken in the 2022 budget.

As part of the National Insurance Law, every three years the organization must present a report containing a forecast and expectation of payments and allowances to its Israeli constituents and demonstrate the ability to meet Israelis’ legal rights. The current report is based on Bituach Leumi’s state of affairs at the end of 2022, and Ben-Tzur requested that it be updated to match current wartime parameters in order to represent a more accurate picture.

Deficit in 2030, Depletion in 2036

The existing report is based on the distribution of income from work, increase in real wages, rate of insurance premium payers, forecast of interest rates which Bituach Leumi receives on the state's investments in bonds, and the Bank of Israel’s forecasts on unemployment rates. It was found that from 2023, welfare payments are expected to exceed the scheme’s income, and part of the payments will be taken from the fund.

As soon as 2030, Bituach Leumi is expected to enter a deficit, which is estimated to cost billions of shekels to complete its full payment obligations.

In 2036, the fund is expected to be depleted, and without additional funding or the return of the funds taken to the state treasury, Bituach Leumi will not be able to pay its full legal obligations to the residents of Israel.

According to this forecast, in 2023 the scheme will pay benefits totaling approximately 118 billion shekels ($31.9 billion), including disability benefits, maternity benefits, unemployment, senior citizen benefits, burials, and more, and the balance of the fund at the end of this year will be approximately 245 billion shekels ($66.3 billion).

As mentioned, the forecast did not include the war expenses, which are divided into two main areas. The first is the payment of pensions that are “insurance,” as citizens are insured by the fact that they pay social security on a regular basis. The second part is assistance for which the state treasury has to reimburse the National Insurance institute and return the money paid.

Policy Reforms and High Life Expectancy Weigh on the Scheme

This is not the first time that Bituach Leumi has warned of bankruptcy. According to the previous actuary’s forecast, the balance of the fund was expected to reach zero in 2044 and was brought forward in this report to 2036 for various reasons, including the passing of necessary reforms in disability and nursing allowances, population growth, and the high life expectancy in the State of Israel compared to other OECD countries.

Bituach Leumi also emphasized the costs incurred by the Ministry of Finance on the institution indirectly, through low interest rates for bonds lent to the Treasury. The institution proposed examining the interest rate, which is changed unilaterally by the Treasury, and ensuring the maximization of profits for the benefit of the public without a unilateral change. It also requested a refund for the hundreds of billions of shekels that were routinely taken from citizens’ payment for future insurance to cover deficits, without providing the accountability and approval required by law from Bituach Leumi for the investments of these funds, something that was also written about extensively in the State Comptroller’s report in 2015.

According to the report, the COVID-19 crisis meant that there was a decrease in the scheme’s revenues, both from the public and the treasury, as well as a decrease in its investments in bonds, and correspondingly a decrease in interest income.

At the same time, other legislative changes were passed which affected the actuarial situation of the institution, such as the Insolvency and Financial Rehabilitation Law, which prioritizing rehabilitating corporations facing bankruptcy instead of liquidating them; the raising of the retirement age for women in accordance with the Economic Efficiency Law in 2021; and the disability reform of June 2022, which passed after years without a change in benefits for disabled citizens.

Minister of Labor Ben-Tzur, who created a committee to tackle the issue, said:

"The independence of Bituach Leumi and the continuation of payments to the residents of Israel are a necessary thing in a moral and reformed society. The public in Israel has paid for welfare all its life and they want to [rest] knowing that if, God forbid, something happens, the insurance scheme will be there for them and pay all the rights they have accrued over the years. I have directed all the relevant parties to sit together and try to reach appropriate solutions, and this is at the same time as clearly stating that the offset of benefits will not be under my watch. Disabled people, senior citizens, and the unemployed will not be harmed. Over the years, legislative reforms have been passed, billions of shekels have been transferred every year, and this is a social, economic and values issue which must be considered in order to ensure its continued existence.”

Acting Director General of Bituach Leumi Zvi Cohen said:

“Bituach Leumi is a deep-rooted and social body which was established back in the days of Golda Meir to ensure that every person who needs assistance will not depend on the mercy of others, but will be granted help with full rights. This spirit and policy is a law in the state of Israel, and that’s a good thing. The corona crisis and the difficult war we are in only sharpen the need for an organization like Bituach Leumi, which provides answers to the victims of hostilities, the unemployed, senior citizens, those in nursing care and recipients of income support. In a reality where the economic and security situation changes frequently, the citizens of Israel have to live knowing that there is a social body that is there for them. The actuarial situation of the organization is an issue which needs to be transparent to the public and the decision makers to ensure that the residents of Israel are covered for many years to come.”

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