!
English Deutsch terms of use
RSS Feed
Home Printer-friendly Version
labor

The Pension Scam

I

N JULY 2007 the Histadrut (Israel's General Federation of Labor) reached a pension agreement with the Coordinating Office of Economic Organizations.1 "A historic accord!" said the signers. For the first time in Israel, the unorganized working poor would have a pension fund. The Histadrut's General Secretary, Ofer Eini, announced that the agreement would protect the weak, granting them economic security on retirement. The real picture is quite different.

Behind the new pension agreement stands an initiative by the Finance Ministry, which seeks to create an obligatory pension by law. The initiative was conceived as part of the neoliberal line that Finance has been pushing in recent years (including the privatization of public assets, the breaking of organized labor, and reductions in welfare allotments). The aim is to free the government from the burden of having to make income-maintenance payments to about a million of the working poor after they retire.

Economist Dan Sprinzak explained the Ministry's motives in an article on Ynet (August 12, 2007). "According to the law of income maintenance, a retiree who depends entirely on the National Insurance [old-age] allotment has the right to an additional benefit [income maintenance]. If people with miserably low income are forced to set aside part of their meager earnings for a pension, when they reach old age they won't be eligible for income maintenance, or if they are, its amount will be reduced according to the size of their pension….[This would signal] the liberation of the state from the need to pay income maintenance to aged workers." (See box: The Pension Scam in Numbers.)

The Histadrut caves in

It is in this light that we should assess the pension agreement signed by the Histadrut. The million people it covers belong to small firms. Until now their bosses have often refused to honor workers' rights or even pay the legal minimum. By contrast, the bigger industrial companies, hotels, the government, and building firms provide pensions for their employees as part of an older collective agreement with the Histadrut. Each month, 17.5% of salary (sometimes 20%) goes into these pension schemes. Usually a third of the amount is deducted from the worker and two-thirds is paid by the employer.

But the story is entirely different when the bosses of unorganized workers—in small businesses, restaurants, and shops—are asked to contribute to a pension fund. In the past the bosses claimed that a 20% rise in wages would bankrupt them. They want nothing to do with pensions. It is doubtful whether they will cooperate, and the means of implementation are scarce.

The Histadrut has issued no plan for coping with the problems of the working poor. Despite his theatrics of social consciousness, Histadrut chief Eini caved in on major questions of principle. He made concessions to his good friend, Sharga Brosh, who chairs the Association of Industrialists. The resulting agreement perpetuates the division of the working public into two groups: those who benefit from collective agreements and those—the unorganized—who don't.

The workers, we note, had no part in the pension talks. In effect, the Histadrut negotiated and signed the paper in the name of a million people who do not belong to it and whom it has never made an effort to organize.

Apart from shifting the burden from the State to the impoverished worker, the agreement has additional flaws:

1. For the unorganized workers, the Histadrut agreed to reduce the amount to be paid to the pension fund from 17.5% of salary to 15% (one third to be paid by the worker and two-thirds by the employer). This cut has a twofold significance. First, as said, it perpetuates two classes of workers, one of which gets better benefits. The Pension Law of 2003, which sought to strengthen the pension funds, increased the amounts to be paid by both employees and employers, but here the Histadrut has settled for less, setting a new standard that might later be used to reduce the rights of organized workers. Secondly, 15% of salary per month will not guarantee anyone a decent standard of living on retirement.

2. The employer will be required to contribute to the pension fund only after the employee has worked nine months. We know the result from experience: workers will be fired before reaching the nine-month mark.

3. Those willing to work for less than the legal minimum will not be able to force their bosses to contribute to a pension plan. They will end up gaining nothing from the new agreement. In cases where the boss abides by the new rule, fearing punishment by the State, the chances are that he will transfer the burden of his 10% to the worker.

4. The agreement does not cope with the fact that the big insurance companies now control the pension funds and exact high prices for administering them—6% of the accumulated capital and 0.5% of the annual increment. While agreeing on a reduction in the percentage to be paid in, the Histadrut could have demanded a cut in these costs. It didn't.

5. The plan includes no mechanism for implementation.
The last point brings to mind a collective agreement that the Histadrut signed three years ago with the big personnel agencies; the workers were supposed to get social benefits at last, and even a pension fund. Implementation has turned out to be zero. It is doubtful whether a single worker has gained.

None of this is inevitable. True, it is by no means easy to persuade workers, one by one, to unionize and to put money aside. It is even more difficult to do so with poor workers who have no spare shekels to save. The problem with the Histadrut is that is does not have the word "organize" in its vocabulary. Instead, the Histadrut Chairman seeks "good relations" with the bosses. This approach leads nowhere. In the cruel labor market of globalized capitalism, there are no shortcuts around the arduous path of organizing the workers.

WAC's Alternative Pension Plan

In June 2007, after six months of tough negotiations, the Workers Advice Center (WAC) signed a pension agreement with the second largest pension firm in Israel, "New Makefet". In it WAC ensured its members several extra benefits. The most important was a reduction in administrative charges (2% instead of 6%). For each worker this means a net gain of hundreds of shekels per year. Members are also insured against loss of ability to work; in such an event they will get 75% of salary.
Whereas the Histadrut, in its new pension plan, allowed an implicit distinction between joining a pension fund and joining a union, WAC insisted on a tight connection between the two. In addition, it has undertaken a broad campaign to persuade employers and employees of the importance of a pension plan. In gaining new members, it can promise them a pension arrangement, and professional advice pertaining to it, on the highest level.

The Pension Scam in Numbers

The National Insurance Institute (NII) pays each qualifying individual an old-age benefit of 1159 shekels (NIS), the equivalent of $283. If the person has no other income he is entitled to an additional "complementary benefit" (income maintenance) of NIS 1022. Thus the total benefit amounts to NIS 2181.

Take, then, the case of a worker with a monthly salary of NIS 4,000, and suppose he has a pension plan for 27 years. He pays NIS 200 a month, 5% of his salary, while his employer puts in an additional 10%, making the total of 15% that the new agreement specifies. On retirement the worker will receive a monthly pension of NIS 1260. This will save the State of Israel NIS 1022, which it would have had to give the worker if he hadn't built up his own pension fund. The result is clear: workers are required to save from their below-poverty income in order to relieve the state of its legal responsibility for them in old age.

Home Printer-friendly Version Top of Page