Don't neglect your pension contributions!
Since 2017, self-employed people in Israel aged 21 to 60 must contribute to a pension. How the contributions are calculated and the tax they save you.
Don't neglect your pension contributions!
In Israel, about 12% of people in work are self-employed. This includes craftspeople, shopkeepers and people in the liberal professions.
Weighed down by all sorts of charges (Bitoua'h Léoumi - National Insurance, taxes and VAT), until 31 December 2016 most self-employed people did not open any pension account with an insurance company. Such an account would have guaranteed a decent income when the time came.
The pension system in Israel: a hybrid model As with the health system, the arrangement in Israel sits halfway between what exists in France and in the United States. Bitoua'h Léoumi (National Insurance) pays an old-age allowance once a person reaches retirement age (67 for men, 62 to 65 for women depending on their date of birth). Private insurance companies, the well-known pension funds, then take over.
Many retirees end up in poverty if they have not taken out a private pension policy in good time. In 2026, the Bitoua'h Léoumi old-age allowance is 1,838 shekels a month for a single person (up to 2,757 shekels with the seniority supplement) and 2,762 shekels for a couple where only one receives the allowance. That is why, in everyday life, we see many elderly people still working, often as security guards or drivers for men and as cleaning staff for women.
The new 2017 law: a compulsory contribution for the self-employed To tackle this problem, in 2015 Member of Knesset Elie Cohen of the "Koulanou" party of the time, under the leadership of Mr Moché Ka'hloun, passed a new law. This law, which came into force on 1 January 2017, now requires the self-employed to contribute to their pension. Anyone aged 21 to 60 must now contribute, otherwise they will be fined 500 shekels for each year without contributions.
Unlike employees, who contribute 18.5% of their gross salary, of which 12.5% is paid by the employer, the rates for the self-employed are lighter. But in practice, what is the contribution rate?
How contributions are calculated for the self-employed
To work out this rate, the legislator took as a ceiling the national average Israeli salary on 1 January 2017, which was 9,543 shekels a month.
First scenario : if the person earns a monthly income below the average salary, the monthly contribution is 4.45% on half of 9,543, that is 4,772 shekels, and 12.55% on the difference between that amount and the actual income.
For example, a self-employed person earning 7,500 shekels will come out roughly even. They will save about 510 shekels in contributions to Bitoua'h Léoumi and, at the same time, pay 555 shekels towards their pension with an insurance company.
Second scenario : the person earns a monthly income equal to or above the average Israeli salary, 9,543 shekels. The contribution stays the same up to 4,772 shekels. That means 4.45% of 4,772 shekels (213 shekels) + 12.55% on the difference between half the average income and the actual income (9,543 shekels), which is 599 shekels. The total monthly contribution is therefore 812 shekels a month.
A self-employed person earning 10,000 shekels a month will save about 170 shekels in payments to Bitoua'h Léoumi and will pay 812 shekels in parallel for their pension with an insurance company.
A self-employed person earning 15,000 shekels will save 80 shekels with Bitoua'h Léoumi and will pay 812 shekels for their pension.
A self-employed person earning 20,000 shekels will keep paying their monthly contributions as usual but will also pay 812 shekels a month for their pension.
Tax deductions and benefits
It is important to point out that these payments are fully recognised by the Treasury. This means they are tax-deductible. That explains why, well before this law, many self-employed people were contributing substantial sums of their own accord. They secured a comfortable pension on the one hand and, on the other, significantly reduced their taxes, thanks to a deduction from taxable income and a 35% tax credit on part of the contributions.
2026 update: the compulsory contributions of the self-employed are 4.45% of income up to half of the average salary (82,614 shekels a year), then 12.55% up to the average salary (165,228 shekels a year), with no obligation above that. The amounts quoted above are those of an earlier year.
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