Wednesday, 4 January 2012

We shall fight them on the beaches and in the counting houses

Could you lend me 100 shekels? Let’s make that 1000 shekels. No sorry, I mean, 14,000 shekels, and I promise never to pay it back.
Sounds like a good deal? No, I didn’t think so either, but you’ve already done it, and you just didn’t know it.

Let’s assume you are an ordinary (of course, I don’t mean ordinary, in many ways you are spectacular and incredible, which is why you’re reading my blog, and why we’ve been friends for all these years), I mean, let’s assume you are a regular Israeli taxpayer. Well then you have given (and will give) thousands of shekels to pay for others who have either misplaced their money, or thought it would be far funnier if they got you (yes you, no not him next to you, YOU) to cough up.
I am of course referring to public sector non-contributory pensions, but if I’d written that in the first line, you’d have gone off and watched Downton Abbey. True? True:)

Now many people get put off by the word “pension”, and I agree, it hardly sets the heart racing. And if we add on “non-contributory”, well, even I nearly dropped off to sleep just typing it.

In Hebrew the term used is pensia taktsivit (תקציבית (פנסיה which is a wonderful euphemism. It literally means budgetary pension, which of course makes no sense to anyone at all. If they called it by the English term “non-contributory” then you’d begin to understand the problem, and at the same time it would rankle all those public sector workers who are generally having a laugh at our expense.
Let’s pick for our example a 43 year old, Dror Mishtalem, who works as a logistics officer in the Israel Defense Forces. He’s clocked up over 20 years of service in the army, and he’s soon to retire. Yes, you heard that correctly: Soon. Apparently permanent staffers in Israel’s standing army oddly become old and decrepit at an incredibly young age.
So let’s say Dror hits the ancient age of 46, and the IDF packs him off home with a pension. A pension that is determined by the size of his salary at the time of his retirement, and could easily be 10,000 shekels a month, which is greater than the average take-home pay of the typical Israeli (average salary is about NIS 8,100). And it also goes up every year, in line with inflation, noch. Plus, Dror could easily live till the age of 83, so that’s a good 37 years of retirement ahead.
In short, we’re talking about a pension worth more than 4 million shekels.
Where does this money come from?
Did Dror put some money aside each month? No.
Did his employers, the IDF, put some cash away for this inevitability? Wrong again.
Did the government, in its usual avuncular spirit, and with honed wisdom of thinking ahead, set up a fund to cover this vast sum? Pull the other one.
Then who?
Yes, you.

I think you should sit down. That’s it, have a cup of tea, or better still a stiff drink.
You, an honest taxpayer, on an average salary, are paying thousands of shekels to keep former engineers, accountants, typists, clerks, drivers, pen-pushers, officers, and maybe a few soldiers, in comfortable retirement.
Of course I say retirement, but that’s also a misnomer, because actually these people often do not retire.
Imagine you are 46, still fit, agile, capable, and by no means middle aged, and you’ve just been “retired”. You’re not going to sit at home and knit matinee jackets for the grandchildren. (Don’t ask - I’m not sure what matinee jackets are either, but Agatha Christie stories always mention them). Indeed, many former IDF staffers find new jobs almost immediately upon leaving their old ones. I used to work for an engineering company where the CEO, his deputy and the head of each department were all former army employees. And to tell the truth, they were all capable, professional individuals, that got things done. So why does the IDF dispense with them so early? Why are we paying for these people to retire so absurdly early that, despite the cushy pension, they often find themselves other jobs, with no doubt good salaries too.

Of course that NIS 4 million I mentioned is just for one person. There are thousands more like him, and most of this pension benefit is “unfunded” i.e. there is no kitty with all the money in it, but rather each month, every month, you--the taxpayer--pay in money which goes straight out again to retired army personnel. It’s called pay-as-you-go. I like that. It describes the situation well. Imagine if all working-age people in Israel suddenly got up one day and stopped working or left the country. Then the thousands of army pensioners would find they have no pensions.

So how much do all these pensions cost? Well there’s a slight disagreement here. Guesses range from NIS 100 billion to over NIS 400 billion, depending on who you ask. The army, by the way, won’t allow anyone near to assess how much it’s costing. So I conservatively took the lowest estimate. And that means a NIS 14,000 contribution each from you and you and you, hence that snazzy opening above.
Don’t be bedazzled by the Defense Minister’s waffling on about security risks, Iranian nuclear threats, and Hamas plotting. The army needs that money because it’s the largest unfunded pension scheme in the country.
And we’re paying for it.


  1. It does beggar belief why the government allows the Defence Ministry to keep its financial budgets and accounts secret? The government has the power to oversee the Defence Budget. For some strange reason though, it doesn't have the will. And as you say, we are all paying a (very hefty) price of it.

  2. Oddly enough, I just read an editorial in the US about the US army pensions. I am only basing this on my knowledge of US army pensions, but I know in the US army also the pension is non-contributory and the editorial was talking about some proposals to make the US Army pension more of a standard "401k/contributory" pension. The editorial was actually against it as in the case of US Army people, they are moved around very often during their careers (minimum 18 months to maximum 3 years is a standard deployment for a US Army person), which impacts their families, their spouse's career choices and salaries, and their ability to build equity in a house. Given that especially in the last 10 years many of the US soldiers have been deployed on long, high-stress, dangerous missions, the editorial was very against changing their pension systems. Also, given the moving around, having good and consistent advise on pension investments would also be a problem for US army folks.

    The above are some of the reasons for a non-contributory pension in the US. However, I am not sure that Israel has the same issues. People in keva yes have to go to war, but so do people in miluim and since Israel is a much smaller country and army, I doubt they physically move around as much with the issues that causes for family and spouse. Any ideas?