The replacement of the designated bonds has been postponed: you will consider raising the guaranteed threshold

The replacement of the designated bonds has been postponed: you will consider raising the guaranteed threshold
The replacement of the designated bonds has been postponed: you will consider raising the guaranteed threshold

The Knesset Finance Committee continued today (Monday) to discuss a chapter in the Arrangements Law that deals with the replacement of a mechanism The designated bonds In pension funds in a mechanism that guarantees a return of 5%. During the convenient debate before the Knesset members, an updated bill, which includes a number of significant changes, from raising the guaranteed rate of return to rejecting the law.

Under the reform, the state will stop issuing designated bonds at a rate of 30% of old and new pension assets, with the same rate of savers’ money invested in the capital market, and as long as the annual return achieved on these amounts is less than 5%, the state will supplement the pension funds. The difference to ensure a return of 5%, and as long as the return achieved is higher than 5% the funds will transfer the difference to a fund to be established to ensure future return and complete the differences as required.

The committee’s chairman, MK Alex Kushnir, asked the Treasury to examine that the guaranteed return would be increased to 5.15%, so that it would include the average management fee in the market and lead to a net return. The committee will convene tomorrow morning for further discussion of the law, when votes are possible.

In view of the comments of the Capital Market Authority, and the institutional bodies in the committee’s deliberations, that the application of the law will be postponed from January 1, the date of the original law, to July 1, 2022, when the Minister of Finance can postpone it until December 1, 2022.

The Capital Market Authority stated that the time limit amended regarding the entry into force of the law is limited, and requested that the position of the institutional bodies be heard regarding this so that a situation of harm to savers does not occur, noting that many regulations will accompany the law.

To the demands of the committee members in previous discussions, a number of changes were made to the proposed wording. Against the background of Knesset members’ fears that the state will change the law and change its obligation to complete the return to 5%, it was determined that even in the event of a change in the law, the benefit of completing the return will be maintained for 15 years.

As part of the Knesset members’ fear that the state will not allocate sufficient amounts over the years to the fund and in a crisis situation it will not be enough to complete the returns, were determined as published last Thursday, in the law the annual allocations rates to the fund 3%, in the years 2025 – 2026 – 2.5%, in 2027 – 2%, and in 2028 onwards – 1.8% – the calculation will be made each year separately.

It was further agreed following the raising of the issue by the Knesset members that the guaranteed return set at 5% will include direct expenses due to the execution of transactions in those properties, and these will not be deducted from the return. It was further determined that the guaranteed return of 5% will be 5 years of interest linked to the consumer price index, and it was determined that the linkage to the index will be made only if it is positive.

The new bill proposes that within the framework of regulations that will accompany the law if necessary, there will be certainty that even when switching between funds and accounting between funds, savers’ money and rights will not be harmed. Following the remark of the Capital Market Authority in previous committee deliberations, it was determined that the bond funds will only be invested in new non-marketable assets (usually real estate), given that investments in such assets usually yield returns only after several years, and the state enters existing investments through funds The bond, would have resulted in her enjoying the profits without participating in the costs in the first place.

It was further clarified during the reading of the wording that the funds transferred from the bond funds to each saver’s pension fund will be invested in a separate channel from the rest of the saver’s funds, in order to distinguish the returns, with the route chosen being the same as the saver.

During the debate, a request was made by Knesset members that a special majority be required in the Knesset to change the law. The committee’s chairman, MK Alex Kushnir and members of the committee requested that legal advice reconsider the issue.

 
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