Israel was recently ranked eighth in the world in the WHR Happiness Report – a surprising achievement given the country’s challenging reality and recent turbulent years. Yet, as impressive and uplifting as this ranking is, it may feel modest when compared to Israel’s standing in other global measures, particularly in pension wealth.
In fact, Israel’s pension system is considered one of the world’s leading systems, as reflected in the annual Mercer CFA Institute Global Pension Index, one of the world’s top consulting bodies.
In the latest report, Israel ranked fourth out of 48 countries, with an overall score of 80.2, positioned just behind the Netherlands, Iceland, and Denmark. These four countries, including Israel, are the only ones awarded an “A” rating, meaning a high-quality, sustainable, and well-governed pension system.
Israel ranks high thanks to the existence of a mandatory law requiring every employer and employee to contribute to a pension savings plan. Typically, the contribution rate hovers around 20% of the monthly salary.
Robust pension system
Beyond the obvious – building an economic foundation for retirement – the robust pension system in Israel provides several other significant advantages that directly or indirectly benefit savers and investors in the country.
The mandatory pension contributions, along with Israel’s consistent demographic growth, generate a continuous monthly cash flow estimated in the tens of billions of shekels. This capital flows to various institutional investors, who in turn must seek out profitable investment opportunities for this fresh capital.
However, given that Israel’s market is relatively small compared to the vast sums being invested and considering that diversification is a fundamental principle in the investment world, there’s an essential need for these entities to explore opportunities abroad.
This supply of liquid capital serves as a magnet for some of the world’s largest investment funds and management investors.
Attractive business arena
These entities understand that Israel has been and likely will continue to be an exceptionally attractive business arena for raising capital and forging business collaborations. This fact enables local management investors to gain access to global investments alongside top-tier managers, who handle the public’s savings.
As a result, asset portfolios benefit from diversification, efficient geographic distribution, and exposure to investment channels that otherwise wouldn’t be accessible without these international partnerships.
This advantage isn’t necessarily enjoyed by savers and investors in other relatively small economies like Israel. In fact, it would be hard to envision the world’s major financial players entering the local market – constituting only about 0.4% of the global economy – certainly not at current levels, without a high-quality, advanced pension system generating substantial sums needing allocation across various investment channels.
Public asset portfolio
Additionally, to complete the picture, it’s worth highlighting that Israel’s public asset portfolio has also grown significantly, further fueling interest. According to the Bank of Israel, the financial asset portfolio of the public surged from NIS 4.5 trillion in 2020 to NIS 5.7 trillion in 2024.
These funds also function as a broad pipeline through which massive amounts are continuously channeled into savings and investments, regardless of the global situation. This further enhances Israel’s attractiveness and motivates foreign entities to engage with Israeli investors and secure a foothold in the local market.
The evolution of long-term management investors has strengthened this trend. The growing presence of international entities in Israel is closely tied to the evolution that pension and management investors have undergone over the years.
Their expanded operations, along with the establishment of specialized divisions and teams focusing on specific investment sectors – some innovative and unfamiliar to the general public – enable a broader approach to adopting new savings and investment products that were previously off-limits due to a lack of familiarity or understanding.
These processes provide Israeli institutional entities – as well as savers and investors – with streamlined access to top-tier global investment managers. These managers open the door to key investment sectors at the forefront of global trends, such as infrastructure, private debt, and more.
The result is stable, long-term returns that enhance the performance of our collective savings and investments. Ultimately, these outcomes have a direct impact on the quality of life for Israeli citizens, serving as a kind of economic Iron Dome in the face of an ever-shifting global landscape.
Preferred destination
In conclusion, Israel’s pension system, alongside the total liquid assets accumulated in the public’s portfolio and the continuous flow of institutional investments seeking new opportunities, has significantly increased interest from leading global investors in the local market. This has turned Israel in recent years into a preferred destination for collaborations and capital raising.
This is a significant advantage that should not be underestimated, as it eventually translates into economic value that impacts quality of life, strengthens the local economy, and preserves our financial resilience. These, of course, are essential commodities in an ever-changing and unstable environment.
The writer is managing partner at Value Global, a strategic consulting firm within the Value Advanced Investments Group.
