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Israel: State Funding of Child Savings Accounts

(Jan. 13, 2016) On November 18, 2015, the Knesset (Israel’s parliament) passed legislation providing for the transfer of funds by the National Insurance Institute (NII) into child savings accounts (CSAs).  (Economic Improvement (Amendments for Reaching Budget Goals for Budget Years 2015 and 2016) Law, 5776-2015, §§ 28–29, SEFER HAHUKIM [BOOK OF LAWS (the official gazette), SH] No. 2511, p. 217 at 244–247 (Amendment Law) (in Hebrew).) The provisions establishing the CSAs amend the National Insurance (Consolidated Version) 5755-1995 Law (NI Law).  (SH No. 1522, p. 210.)

Purpose of the CSAs

According to the explanatory notes for the government bill that became the Amendment Law, the objective of creating the CSAs was “to assist youth and facilitate their absorption and integration in proper living conditions upon reaching [the age of] majority.”  (Economic Improvement (Amendments for Reaching Budget Goals for Budget Years 2015 and 2016) Draft Bill, 5776-2015, Government Draft Bills No. 951 p. 1627 (in Hebrew).)

The government bill was tabled following the signing of coalition agreements between the Likud and the United Torah Judaism (Yahadut Hatorah) and Shas party lists.  Withdrawal from CSAs, according to a subsequent government decision, would be authorized at age 18 for certain purposes, including education, starting a business, marriage, or the purchase of an apartment, while withdrawal after the age of 21 would not be subject to any restriction. (Government Decision No. 362 of August 5, 2015, Prime Minister’s Office (in Hebrew).)  Pursuant to the government decision, the Amendment Law as enacted authorizes withdrawal for medical reasons prior to the age of eligibility.  (Amendment Law § 28, adding § 74D to the NI Law.)  However, it does not limit withdrawal under the age of 21 to the objectives expressed in the government decision.

Funding the CSAs

The NII budget derives mainly from premiums paid by Israeli citizens in accordance with the NI Law and regulations, in addition to funding provided by employers and the government.  The NII receives independent income from interest on investments.  (General Data – Sources of Financing, NII (last visited Jan. 11, 2016) (in Hebrew).)

According to the Amendment Law, the NII should deposit a monthly sum of IS50 (about US$13, the “basic savings amount”) into a long-term savings account for each child of an insured resident of Israel. (Amendment Law, § 28, adding § 74B (A)(1) to the NI Law.)  The basic savings amount is paid in addition to “a basic amount” provided to families for each child, depending on his/her birth order.  (Id. § 28, amending §§ 1 & 68 of the NI Law; for conditions of eligibility for the basic child allowance amount and for a definition of persons insured under the NI Law, see NI Law, §§ 66, 223, & 240(a).)

A parent may request that the INI transfer the full or a partial payment of the basic amount (“added savings amount”) into the CSA.  (Amendment Law § 28, adding § 74B(A)(2) to the NI Law.) Such a transfer may, however, be subject to a ceiling that may be established by the Minister of Treasury with the approval of the Knesset Finances Committee.  (Id. adding § 74B(A)(3) to the NI Law.)

The amount saved in a CSA for a child will be held in a trust account until the child reaches the age of 18 and cannot be subject to any lien or confiscation.  (Id. adding § 74B (B-C) to the NI Law.)  CSAs will be managed by a body that will be selected in accordance with requirements of the Public Tenders Law, 5752-1992 and in accordance with guidelines to be issued by the Minister of Treasury, with the approval of the Knesset Finances Committee.  (Id. adding § 74B(D) to the NI Law; Public Tenders Law, 5752-1992, SH 5752 No. 1387, p. 114.)

Withdrawing Funds from the CSAs

The Amendment Law requires the transfer of IS500 (about US$127) into a child’s CSA upon the child’s 18th birthday, as well as an additional IS500 on the child’s 21st birthday if she/he had not withdrawn the money from the account by that date.  (Amendment Law § 28, adding § 74D to the NI Law.)  Both amounts will be updated in accordance with the inflation index rate.  (Id. adding § 74C to the NI Law.)

According to the Amendment Law, the NII will transfer a total amount of IS1,000 (about US$254) in equal allotments to each CSA for the period starting May 1, 2015, and ending on December 31, 2016. Basic saving amounts, as prescribed by the Amendment Law, will be transferred into CSAs starting January 1, 2017.  (Id. § 29.)