YASMIN IS UNEMPLOYED.
When people are fired, severance pay is often the first thing that crosses their mind. They forget that severance pay monies are part of the pension fund. An employee who is fired and takes the severance pay to which she's entitled is reducing her pension payments at retirement.
In Israel many people believe that taking severance pay is always a good idea, because if you don't take it, the employer gets to keep it. This is no longer true: Today severance pay is part of the pension package and it is held in your name.
I'm no longer employed. How can I support myself? Am I entitled to unemployment compensation? What should I do?
* First: Ask your employer for a letter of termination of employment as well as a release letter to the pension funds, the in-service training funds (if you have such), and the insurance plans (if you have any), as well as Form 161.
* Second: Go to the Employment Bureau to search for a new job that suits you. Show them the termination letter and bring a resume. Also register as unemployed with the National Insurance Institute, and file a claim for unemployment insurance. During your period of unemployment, you are obliged to show up at the Employment Bureau once a week to register and look for a job.
Am I entitled to severance pay?
* If you were employed for at least one year at the same place before you lost your job, you're entitled to severance pay of one month's salary for every year of work there. First find out from your pension company how much money is in your severance pay fund. If the balance is less than the amount to which you're entitled (based on the calculation of one month's salary for every year you worked there), you can demand that your employer make up the difference, unless your job contract includes "Article 14". (12) Under "Article 14", you'll have to make do with the amount already accrued in the pension fund for severance pay.
* You have the option of withdrawing all the severance pay accrued in your fund or you can withdraw part of it. Now you have to make a decision: If you withdraw the severance pay, your pension fund will diminish and you'll have less money in your pension for retirement. If you withdraw the entire amount, you'll be exempt from income tax on your severance pay (up to a certain amount), but you may be reducing the tax exemption on your retirement pension. Severance pay is tax exempt up to NIS 12,360 for every year you worked (as of January 2014). If you decide to withdraw the severance pay in your fund, you should consult an accountant or tax advisor, and consider various options that can help you reduce the tax on your severance pay.
Do I have to withdraw all the severance pay?
* No, you can withdraw some of it or none of it; the balance remains in your pension fund. We urge you to talk to a tax or pension consultant or to a representative of your pension fund company.
* Remember: In the past, severance pay funds were held by central severance pay trusts, and only when an employee was fired could she receive severance pay from her employer. At the time, it was believed that withdrawing severance pay was always a good idea, as other wide the employer would get to keep the money. Since then the rules have changed, and today severance pay is part of the savings accrued in the pension fund. Now the severance pay component is considered part of the capital accrued for pension payments at retirement.
What happens to my pension fund when I'm unemployed?
As noted, your fund will diminish if you withdraw your severance pay. The balance will continue to be invested and earn interest subject to the performance of the capital market.
The pension fund companies are aware of the fact that when someone is unemployed, her income is greatly reduced or even nil, therefore they offer the following options:
* To continue to pay into the pension fund the very same amount that you and your employer contributed on your behalf until you were fired;
* To pay into the pension fund less money than was paid before you were fired;
* To pay only the insurance components into the pension fund. This is a relatively small amount called "temporary risk" that is paid to ensure continuity of the disability insurance and survivors' insurance (for a husband and children). You can pay "temporary risk" for a period of two years or, if you worked at the job less than two years, for the amount of time you contributed to the pension fund.
If you stop paying, you can generally retain the right to your disability insurance and survivors' insurance for five months (check with your pension fund), and the insurance can be resumed.
(12) Paragraph 14 describes a different way of calculating severance pay: Under this system, the employer deducts 8.33% of your salary every month for as long as you work there. Thus, there is no concern that the payment from the employer will be insufficient when the time comes. On the other hand, if your salary was raised over the years, you will be getting a smaller amount than you would have received had the calculation been done according to your most recent salary.