Two days ago, the Presidium of Israeli Business Organizations and the Histadrut Labour Federation signed a General Collective Agreement (Framework) to increase the contribution rates to pension insurance in the market. In general, the Collective Agreement increases the minimal rate of employee contributions to the pension component of their pension funds to 6%, and the employer contributions to the same pension component to 6.5%, in two steps.
The Collective Agreement was signed during a meeting that was held two days ago in the Knesset's Finance Committee regarding Amendment 12 to the Provident Law (the Control of Financial Services (Provident Funds), 2015 (the "Provident Fund Law"), and the lack of clarity that was created in its wake, regarding the pension budget rate that employers were required to plan for under the various circumstances (as described in length in our previous client updates on this matter).
Amendment 12, which, as you may recall, came into effect on February 5, 2016, is still in force. However, during the deliberations in the Finance Committee, the representative of the Ministry of Finance announced their intention to amend Section 12 of the Provident Law in a way that will reflect the essence of the Collective Agreement.
The Collective Agreement's first step is intended to be carried out beginning on July 1, 2016, and in any case, the Collective Agreement's validity is dependent upon an extension order being issued, which will apply its provisions to the entire market. However, we have chosen to issue this immediate update regarding the developments and recommend that you re-examine the steps you intend to take to implement Amendment 12. Furthermore, we recommend that you learn the provisions of the Collective Agreement and its implications on the workplace, and the specific pension arrangements customary therein.
In the framework of the Collective Agreement, the parties further undertook to approach the Minister of Finance with a request to amend the law in accordance with the Collective Agreement and to approach the Minister of Economy with a request to extend its provisions by way of an extension order, and to further use the Collective Agreement to adapt the "General Order Regarding Payments of Employers to Pension Funds and Insurance Funds instead of Severance Pay" by virtue of Section 14 of the Severance Pay Law, 1963.