Haredim and pensions
Current public debate over budgetary allocations to the ultra-Orthodox (haredi) sector in Israel fails to address one critical component: The long-term financial implications. A central issue under discussion is the anticipated impact on Israel’s economic future of the growing numbers of Israel’s haredi children, whose education does not include secular or core curriculum subjects (English, math, science) and who, as a result, will not be able to find high-quality jobs in the future.
In its planning processes, the IDF calculates the number of haredi children entering first grade and subtracts this number from the potential pool of draftees it expects to enter its ranks in 12 years’ time. But no one is really dealing with the even longer-term implications of this situation: Pensions and old-age benefits.
The approximately 135,000 haredi boys currently studying in elementary school (according to Education Ministry statistics for 2021– 2022) represent about 135,000 potential IDF draftees who will apply for a military service exemption in six to 12 years.
Later on, it is highly probable that they will develop into around 135,000 haredi men who will rely on benefit payments and government stipends and will be exempt from paying income tax, although they are of working age. And even later on, in 55 to 60 years’ time, they will become 135,000 senior citizens who are eligible for National Insurance payments.
If they have not worked on a formal basis and have not made appropriate pension contributions, they will be entitled to an oldage state pension that also includes income support. Who will pay for these enhanced benefits? Today, around one-half of Haredi men do not work. And of those who do, the majority are employed in low-level jobs, with their income lower than the threshold for paying income tax. As a result, in the future, their pensions will also be very low.
Moreover, given the rise in life expectancy and the growing need for medical services in later years, these 135,000 boys, and then men, and then senior citizens, who will also not pay health tax, will place a heavy burden on the health care system in around 60 years’ time.
This is a huge number of men who, in their old age, will need to rely heavily on state support systems, without having invested decades of payments into the funding for these systems and without having saved for their old age.
HAREDI WOMEN, who do study the core curriculum and whose level of participation in the workforce is similar to that of non-haredi Jewish women, also earn less on average than other Jewish women (who in turn earn less than non-haredi Jewish men) for among other reasons, because they work fewer hours on average. Thus, although Haredi women make pension contributions throughout their working lives, their pensions will be lower than those of the average Israeli woman and will certainly not be sufficient to support both partners at retirement age.
In a survey carried out by the Israel Democracy Institute (a telephone survey of 700 ultra-Orthodox men and women, aged 20 and above), 78% of respondents of pensionable age reported that their income is lower or much lower than it was when they were working. These respondents belong to the previous generation of haredi society, from a
time when going out to work was more of an accepted norm.
Yet, even they had a lower-than-average income when they were working and their pensions today are also below average. Experiencing a significant drop in income following retirement is not unique to haredim.
But what is unique today and is likely to be exacerbated in the future is the low percentage of haredi men who are employed, and the low income earned from work, due to a lack of training and of core curriculum studies. These two characteristics affect both the macro level – the large proportion of the haredi population who rely solely on government benefits for income and will do so as senior citizens (while only a tiny share will have accrued sufficient pension savings) – and the micro, the ability of individuals to live in dignity after retirement.
Among those ultra-Orthodox survey respondents who have not yet reached retirement age, only 39% think that their income after retirement will be lower than their current income; only 56% know where their pension fund is held, and 20% reported that they have no pension fund.
While over-optimism or lack of awareness about pensions are not limited to haredim, among haredim, there is an additional cause for concern: Among those who work, just 22% save for a pension beyond the mandatory contribution to a pension fund made by employers or the minimum contribution required of self-employed workers, and among haredim who do not work, only 22% save for a pension at all.
These data are extremely troubling in light of the high percentage of Haredim who do not work: Given that a large majority of these are not saving for a pension (78%), they face severe poverty at retirement age and will place a heavy burden on the National Insurance and health systems.
THE LACK of awareness of this reality among the ultra-Orthodox is one side of the equation; the other consists of the economic implications and the consequences for the public purse. The annual growth rate of the haredi community stands at around 4%, and if this rate remains stable, the community will double its size every 16 years (Annual Statistical Report on Ultra-Orthodox Society, 2022).
Thus, having such a large proportion of senior citizens supported by the state will require a massive investment of public resources. It is difficult to see how the current level of welfare service provision can be
maintained, and the result will be a much poorer Israel than the one we have become accustomed to.
Senior officials in the Finance Ministry’s Budget Division have already stated in a professional opinion that significant increases in taxation may have to be introduced, which will apply to the other sectors of the population, in order to prevent the total collapse of the government support systems.
Haredi interviewees spoke about the difficulty of dealing with the issue: “Thinking about the future is a luxury. Right now, we have to worry about the present and making ends meet, about dental treatment for our child.”
Others are banking on inheritances: “Pensioners live off inheritances from their parents, who themselves die close to retirement age.” But this is a misguided plan: The rise in life expectancy delays the passing down of inheritances and the huge rise in the number of children divides up any sums left by parents into small and insufficient shares.
The data show that the ultra-Orthodox population, like other disadvantaged populations, does not save enough for pensions and is not aware of the importance of long-term financial planning. Thinking about the long term would lead most haredim to understand the importance of core curriculum studies and to insist that their children are taught them and enter the workforce, which would likely save them from future poverty.
Thinking about the long term would also show them that it is not possible to rely on the state budget to fund benefits when a growing number of senior citizens will be former yeshiva and kollel students who do not contribute to the state’s coffers.
These reserves will be emptied out, there will be nothing spare in the budget and a heavy price will be paid by the entire population, including in terms of the services that the state will be able to provide.
By staying silent and ignoring the issues today, we are all betraying our future elderly population and our future welfare and health care services. The Finance Ministry, the National Insurance Institute and other agencies tasked with long-term planning can undoubtedly see the rapidly approaching iceberg. They must make the disastrous consequences explicitly clear to the entire public and must especially ensure that the haredi public is made well aware of them.