Consulting on pension issues is a professional matter, and is subject to a license. The tax advantages of the study fund (for the time being) benefit savers, and many consultants argue that it is not worthwhile to withdraw from it until retirement. However, it is advisable to know the options available to those who need and want to withdraw money from the fund without making an illegal withdrawal, which may leave us without a significant part of the funds we have worked to save.
foreword
Questions often arise regarding the funds available in pension sources and the possibilities of using them. The issues involve labor law, tax law, various tax considerations, personal reasons (such as: preference for the present over saving for the future, risk aversion, etc.) and examination of the various options in light of the alternatives.
In most cases, when it comes to consulting with pension consulting licensees on questions related to withdrawing funds before the employee reaches retirement age, including study funds, consultants tend to say, correctly, that these funds should not be touched.
Nonetheless, in this review we will try to examine the options available to us in relation to the use of funds accumulated in study funds. We will try to provide here a number of tools for understanding the pension product called a study fund, and examine the financial options available to the fund holder.
What we won’t try to do is give advice. The Supervision of Financial Services Law (Marketing Consulting and Pension Clearing System), 5765-2005, stipulated that ” no person shall engage in pension consulting unless he holds a pension consultant license” (and in the case of study funds, the law also permits investment advisers to advise). The law goes on to specify the licensee’s obligations to examine the customer’s financial situation, preferences and tastes.
Providing counseling without a license is an offense punishable by imprisonment. When the need for consultation arises, the license holders can be contacted.
What is a study fund?
The study fund is a unique pension savings instrument in two elements:
a. It is the only savings instrument that is equity, that is , one that allows receiving the savings as a one-time grant and not as an annuity.
B. It is an instrument that serves the medium-term saver (the fund can be redeemed after 6 years of seniority).
The study fund consists of two components:
- Employer contribution (up to 7.5% – and this is also the common rate).
- Employee contribution as a percentage of salary (no less than a third of the employer’s deposit and up to 2.5% – and this is also the common rate).
Also important to know:
- The employer’s deposit is tax-exempt as a benefit up to the ceiling of a salary deposit of up to NIS 15,712 (as of 12/2014), and the employee’s contributions come from the net.
- The employer’s contributions beyond the ceiling will be taxable as wages for all intents and purposes.
- Fund profits are exempt from capital gains tax if they arise from contributions up to the exemption ceiling.
- The savings in the fund are invested in the capital market in accordance with its policy (information about investment channels and returns can be found on the “Gamal-Net” website of the Ministry of Finance).
The study fund as a financial source
The study fund is a medium-term savings. It is not available at all times and even when it is available, it is not economically worthwhile to withdraw funds from it at all times. However, there are cases, for example, large debts or an urgent need for cash, in which the order of priorities changes, and it is necessary to use the accumulated funds.
How do I locate the study fund?
- The most readily available source of information is the salary slip, in which, according to the regulations, the name of the fund to which the funds are deposited should be listed.
- You can contact the payroll department at your current or previous workplace to find out the name of the fund. If there is an agenthandling the workplace through which the funds are transferred, you can find out the name of the fund.
- Another source for locating the fund are the financial statements sent quarterly to the employee’s home (it is advisable to contact the investment house to update an address if it has changed).
- You can also, of course, contact the Pension Clearing House and receive all the information about the pension file for a fee.
What are the rules of attraction?
The fund in which the funds are deposited is closed for six years, but funds can be withdrawn from the fund already after three years in some cases:
a. For continuing education purposes (provided that they are recognized by the Foundation – degree or certificate studies, for example, are not recognized),
In. In case of retirement (in case of death the fund becomes liquid immediately, no matter what seniority).
Also important to know:
- After six years, the funds can be redeemed for any purpose with full tax exemption on the principal and profits.
- Even after six years, it is possible to continue to deposit funds into the fund.
- Upon withdrawal, all accruals, including new deposits, will become liquid and tax-free, provided that not a single shekel is withdrawn from the fund.
- There is no obligation to withdraw all funds in one cloth, but as soon as one shekel is withdrawn, the fund closes for new deposits, and additional funds will be deposited in a new fund that will accumulate new seniority. Withdrawal of funds from the fund before the six years have passed (unlawful withdrawal) will require the attractor to pay maximum tax on the employer’s deposits, as well as capital gains tax.
Withdrawal of funds
As mentioned, it is possible to withdraw funds from the fund when it has accumulated a seniority of six years (the same is true for a fund that has been transferred from one investment house to another, but six years have passed since the first deposit). There is no obligation to withdraw all the money in the fund, and it will continue to bear profits (or losses) in the capital market. It is only necessary to remember that after the withdrawal it is no longer possible to deposit into this fund, and a new fund must be opened.
If all the forms were filled out and transferred correctly (the forms are available on investment house websites), withdrawing funds from a study fund should take up to seven business days (usually, around four business days).
Discarding (applying) seniority
If six years have not yet passed since the opening of the relevant fund (hereinafter, the illiquid fund), and there is another fund (named after the same person) that has accumulated a seniority of six years, and no funds have been withdrawn from it (hereinafter, the liquid fund),
seniority
may be transferred from the liquid fund to the illiquid fund and the funds may be withdrawn from both funds.
The implication of seniority can be relevant for people who have worked for short periods of time for various employers, who have made a small number of deposits into a fund that has been forgotten over time, while they have a new fund that has accumulated a lot of money, but is not yet liquid. This can be done by contacting the less veteran fund to make seniority disposal. The new fund will ask the veteran fund for confirmation that no funds have been withdrawn from it, and accordingly will carry out the discarding of seniority that will enable the withdrawal of funds.
Loans – what is important to know?
- Whether the fund is liquid or illiquid, in most funds it is possible to take a loan at the expense of the fund. Even those to whom the banks normally refuse to give a loan will in most cases receive a loan at the fund’s expense without being asked too many questions, because there is a collateral – the fund’s money.
- The employer’s consent is also not required to grant the loan (as with loans from other pension instruments). Although taking a loan from the study fund is actually a loan from our own money, the terms of the loan are relatively good, the lenders’ requirements are not high, and there is not always a better choice.
- The Insurance Supervision Department allows investment houses to provide a loan from the fund up to 80% of the savings if the fund is liquid, and up to 50% if the fund is illiquid (there is also a variable minimum amount for the loan), and the durable repayment period of up to seven years.
- Some investment houses allow you to get a balloon or grace loan. Interest terms usually range from prime minus 0.5% to prime +1.5% (glossary of terms). Most investment houses provide loan services directly through them, but there are still investment houses that operate this through a bank. At the bank, of course, the loan is a little more expensive and there may be fees, but sometimes the banks allow a loan at a higher rate than the accumulated savings.
- In any case, it is worthwhile to carefully clarify all the conditions before taking out a loan – the amount of the repayment, the interest rate, indexation, deferral of payments (balloon), the repayment period, fees, penalties for early debt repayment, and of course the identity of the operating entity – the investment house or bank.
- During the loan period, it is not possible to redeem the principal without repaying the loan, nor to transfer to another investment house.
summary
Consulting on pension issues is a professional matter, and is subject to a license. The tax advantages of the study fund (for the time being) benefit savers, and many consultants argue that it is not worthwhile to withdraw from them until retirement. However, it is advisable to know the options available to those who need and want, and how to take advantage of the funds without making an illegal withdrawal, which may leave us without a significant part of the funds we have worked to save.
