The Ministry of Finance announces that the reform to guarantee the completion of the return in the pension funds, which it announced for October 21, will enter into force today. The ministry estimates that the reform is expected to save the state coffers billions of shekels every year while improving the rights of savers and guaranteeing an indexed return of 5.15%.
According to the report, the Accountant General allocated for the first time a financial instrument to guarantee the completion of an indexed return of 5.15% to the pension funds. With the start of the allocation, the issuance of the designated “Arad” bonds will be stopped.
At the beginning of October, the issuance of bonds intended for the “Arad” type pension funds was replaced by a yield guarantee mechanism. This reform is anchored within the budget for the years 2021-2022. “Arad” type bonds are index-linked government bonds for a period of 15 years that pay a semi-annual coupon of 2.4% (or 4.86% annually).
According to the new mechanism, the funds will invest the same funds intended for the purchase of “Arad” type bonds in the capital market. On these funds, the state will grant an annual return guarantee at a rate of 5.15% linked to the index.
The Ministry of Finance reports that the reform is expected to save the state coffers billions of shekels, by reducing interest expenses every year and will allow – as long as it works according to the plan – flexibility and efficiency in the management of government debt while deepening the local and international debt market.
The accountant general, Yali Rotenberg: “After many years in which we strived to complete the reform, and after hard work in the last year, we are happy that the mechanism to ensure the completion of the return for the pension funds is underway. The reform of the bonds intended for the pension funds will enable more efficient and flexible debt management while deepening the local and international debt market and saving billions of shekels every year to the state treasury. I welcome the cooperation with the Director General of the Ministry of Finance, the Budget Division of the Treasury, the Capital Market Authority and the pension funds that resulted in the successful completion of the reform.”
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