IDEAS home Printed from
   My bibliography  Save this paper

First Year of the Mandatory Pension Arrangement: Compliance with the Arrangement as an Indication of its Potential Implications for Labor Supply


  • Adi Brender

    () (Bank of Israel)


Since 2008, Israel is gradually implementing a universal mandatory pension arrangement. The arrangement is found to have had a significant effect: about half of the employees that did not contribute to a pension arrangement in 2007, and continued working in 2008, began to save. In comparison, only one sixth of those who did not save in 2006 began saving in 2007. Nevertheless, a significant part of the target group did not start saving, and this avoidance is found to be negatively correlated with the predicted desirability of pension savings for the employee. Key factors affecting the avoidance are: earnings below the income-tax threshold, a non-working spouse and being employed by a small employer. Most of those who began saving did so at the minimum mandated contribution rates, and the discretionary tendency to contribute above the minimum rate, is positively correlated with estimated pension desirability. This conduct indicates that a significant segment of the target group views mandatory pensions as a burden, and tries to avoid it; a behavior consistent with ex-ante calculations that show that it is indeed not beneficial for them. Further analysis shows that full implementation of the arrangement may result in a significant negative effect on the employment of low-income populations. Additionally, based on the existing legislation, tax revenue loss due to mandatory pensions far exceeds the future savings in means-tested old-age allowances.

Suggested Citation

  • Adi Brender, 2011. "First Year of the Mandatory Pension Arrangement: Compliance with the Arrangement as an Indication of its Potential Implications for Labor Supply," Bank of Israel Working Papers 2011.05, Bank of Israel.
  • Handle: RePEc:boi:wpaper:2011.05

    Download full text from publisher

    File URL:
    File Function: First version, 2011
    Download Restriction: no


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boi:wpaper:2011.05. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dafna Koby). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.