IsraelLaw1. The Legal Basis: The 2008 Pension Extension Order
Mandatory pension in Israel does not come from a statute. It comes from the Extension Order for Comprehensive Pension Insurance in the Economy, which took effect on January 1, 2008. The Minister of Labor issued it under Section 25 of the Collective Agreements Law 5717-1957, extending a collective agreement between the Histadrut and the employers' organizations to every employer and employee in Israel. Contribution rates rose in stages and reached their current level in January 2017.
The Order sets a floor. A contract, collective agreement or sector-specific order can require more, and many do, but the employee cannot agree to less or opt out. An employer that skips contributions owes them retroactively, and if the employee suffered a loss (for example, no disability cover when they fell ill), it can be liable for that loss too.
Two regulators are involved. The Capital Market, Insurance and Savings Authority supervises the pension funds themselves, including fees and the information they must send members. The Ministry of Labor enforces the employer's duty to contribute and can impose administrative fines. An employee owed contributions can also sue in the Regional Labor Court; the general limitation period is seven years. Your fund's annual statement, and the CMA's online "Har HaKesef" lookup of your pension accounts, show what was actually deposited.
2. Who Is Covered and When Contributions Start
The Order covers every employee in Israel aged 21 and over (20 for women) in an employment relationship, regardless of nationality, sector, salary level or whether the job is full-time, part-time or hourly. The start date depends on whether the employee already has active pension insurance when the job begins:
- No existing pension insurance: entitled after six months of work with that employer. Contributions are not owed for those first six months.
- Already insured in an active fund: entitled from the first day. The employer may start the actual deposits after three months of work (or at the end of the tax year, if earlier), but must then pay retroactively from day one.
Some sector orders are more generous. Construction workers and cleaning-company employees, for example, are entitled from their first day of work whether or not they had a fund before.
Genuinely self-employed people are outside the Order but have their own duty to save for pension. A "contractor" who is really an employee is entitled to contributions retroactively once a labor court recognizes the employment relationship.
3. Contribution Rates in 2026
The minimum rates under the Extension Order, in force since January 2017 and unchanged in 2026:
| Contributor | Component | Minimum rate |
|---|---|---|
| Employee | Pension savings (tagmulim), deducted from pay | 6.00% |
| Employer | Pension savings (tagmulim), may include disability cover | 6.50% |
| Employer | Severance (pitzuim) | 6.00% (often 8.33%) |
| Total minimum | 18.5% (20.83% with full severance) | |
The mandatory base is the employee's regular salary without overtime, up to the national average wage (about NIS 13,770 a month in 2026). Above that, contributions depend on the contract, although most employers in professional and tech jobs contribute on the full base salary. Employers often add a keren hishtalmut (study fund) on top; that is a common benefit, not a legal requirement for most employees.
A foreign engineer on a B-1 expert visa earns NIS 30,000 a month and joined with no Israeli fund. From month seven, if the employer contributes on the full salary at the statutory minimum: employee 6% = NIS 1,800 deducted from pay; employer 6.5% = NIS 1,950; employer severance 8.33% = NIS 2,499 (or NIS 1,800 at 6%). That is NIS 6,249 a month, about NIS 75,000 a year, going into a fund in the employee's name. If the employer contributed only on the average wage, the mandatory amount would be far lower, so check the salary base shown on your fund statement.
4. Section 14 and Your Severance
Under the Severance Pay Law 5723-1963, a dismissed employee with at least a year of service gets one month's salary per year. Section 14 of that law, together with the Minister of Labor's general approval of 1998, lets the employer replace that future obligation with monthly payments into the employee's pension fund. Where Section 14 applies:
- The severance money in the fund belongs to the employee however the job ends, including resignation.
- If the employer pays 8.33%, the deposits replace severance in full. If it pays the minimum 6%, they replace only 72% of it, and a dismissed employee is owed the remaining 28% in cash unless the arrangement says otherwise.
- The employer generally cannot claw the money back, except in narrow cases such as a court order denying severance.
The Extension Order provides that its severance contributions are made under Section 14, but Section 14 only covers the salary on which contributions were actually made, and disputes are common where the paperwork is unclear, so ask for it in writing. Without Section 14, the severance component stays tied to the employer: it is released to you on dismissal, and on resignation the employer may be entitled to it back. Our Section 14 guide covers the details and common mistakes.
5. Foreign Workers: Pension Fund, Deposit or Direct Payment
The Extension Order applies to foreign workers, but the way the money is handled depends on the sector and visa:
- B-1 workers in construction, industry, institutional nursing and other "deposit" sectors: the employer pays a monthly deposit (pikadon) to a special fund run for the Population and Immigration Authority. It replaces the employer's pension and severance contributions and may not be deducted from the worker's wages. The worker collects it, minus 15% tax, after leaving Israel on time. Part of the money is forfeited for overstaying. See our foreign worker deposit guide.
- Live-in caregivers employed by the patient's family: there is no deposit and no practical way to enroll the worker in a fund. Following National Labor Court case law, the employer pays the employer's share in cash instead: from the seventh month of work, 6.5% in place of pension plus 6% for severance, either monthly into a separate account or as a lump sum when the job ends. The caregiver's 6% is not deducted.
- Experts, tech workers and employees of foreign companies working in Israel: the regular rules apply. You are enrolled in an Israeli pension fund like any Israeli employee, and the fund is in your name.
Families employing a caregiver through a licensed agency often assume the agency handles pension. The legal employer is usually the family, so the family owes the payments in lieu of pension and severance. A caregiver leaving after three years on minimum wage is owed a substantial sum, and the claim can be filed with an Israeli lawyer after the caregiver has left the country.
6. Choosing a Pension Fund
You have the right to choose your own fund. If you do not choose, the employer may enroll you in one of the low-fee "default" comprehensive pension funds selected by the Ministry of Finance in a tender, or in a fund agreed with the workplace. The main vehicles are:
- Comprehensive pension fund (keren pensia makifa): the standard choice. It combines retirement savings with disability and survivors' insurance. Management fees are capped by law at 6% of each deposit and 0.5% a year of the accumulated balance, and most members pay much less.
- Managers' insurance (bituach menahalim): an insurance-company policy, usually with higher fees, more common for senior employees.
- Provident fund for annuity (kupat gemel le'kitzba): savings without built-in insurance, used in some arrangements.
Compare fees, investment-track returns and the insurance cover, which you can do on the CMA's "Pensia-Net" comparison site. If you expect to leave Israel, also check whether you want to keep disability and survivors' cover while abroad and how the fund handles members living overseas.
7. Bituach Leumi: A Separate System
National Insurance (Bituach Leumi) contributions and health tax are deducted from every payslip in addition to pension. They fund state benefits such as old-age pension, maternity pay, unemployment, disability and work-injury benefits. There is no personal account and nothing to withdraw when you leave. Rates are lower on the part of the salary up to 60% of the average wage and higher above it.
Status matters here. An expat who becomes an Israeli resident pays full contributions and joins the public health system through a health fund (kupat holim). A foreign worker who is not an Israeli resident, such as a caregiver or a construction worker on a B-1 permit, pays much lower contributions and is insured only in limited branches like work injury, maternity and employer insolvency. Such workers are not covered by the national health system, and the employer must buy them private medical insurance under the Foreign Workers Law. See Bituach Leumi for foreigners.
8. What Happens to Your Pension When You Leave Israel
The money in your fund stays yours. What you can take, and how it is taxed, depends on the component:
The severance component
When the job ends, the severance money can be released to you (under Section 14, or on dismissal). Severance is tax-exempt up to an annual ceiling for each year of service; amounts above the ceiling are taxable, and you can often spread the tax or leave the money in the fund for pension instead. See severance pay tax in Israel.
The savings component
The employee and employer savings are meant to pay a monthly pension from retirement age: 67 for men, and for women an age rising in stages from 62 to 65. Taking them as a lump sum before then counts as an early withdrawal. Where the fund's rules allow it at all, it is taxed at 35%, and you lose the insurance cover and the future pension. Many departing expats therefore leave the money invested and draw the pension from abroad at retirement age.
- Tax treaties: a treaty between Israel and your new country of residence can change which country taxes the pension when it is paid. Apply to the Israel Tax Authority for a withholding certificate before any payout.
- Tax residency: ending Israeli tax residency can have its own consequences, including exit-tax questions on some assets. See exit tax in Israel.
- Practical steps: keep your fund login, update your foreign address and bank details, and name beneficiaries before you go.
Our guide to withdrawing an Israeli pension when leaving Israel walks through the options in more detail.
9. US Citizens: Social Security and the Israeli Fund
The United States has no totalization (social security) agreement with Israel, so there is no certificate of coverage that exempts a US citizen from Bituach Leumi. Israel does have social security agreements with a number of other countries, mostly in Europe; check the Bituach Leumi website for yours.
Whether US Social Security tax is also due depends on who employs you:
- Employed by an Israeli company: US FICA generally does not apply to wages paid by a foreign employer, so you pay Bituach Leumi only, unless the Israeli company is affiliated with a US company that has elected to cover its US-citizen employees abroad.
- Employed by a US company working in Israel: the US employer generally withholds FICA, and Bituach Leumi is still due in Israel, so double contributions are common.
- Self-employed: US self-employment tax generally applies on top of Bituach Leumi.
US citizens should also know that the US may not treat an Israeli pension fund like a US retirement plan, which affects how contributions and growth are reported. Get advice from a US-Israel cross-border tax adviser before you sign an Israeli contract.
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