Legal notice
This is a free educational course, written with the assistance of an AI model and published without the involvement, review, or approval of a licensed pension advisor. It explains how the Israeli pension system is structured, what the published 2026 figures are, and how to read the official comparison portal.
The content is not pension advice, not pension marketing, and not a personal recommendation about the merits of your own pension savings. Pension advice to an individual is reserved by law to a holder of a licence from the Capital Markets, Insurance and Savings Authority. This course does not know your age, your medical history, your family composition, your other assets, or your retirement horizon, and it does not perform the checks a licensed advisor performs before making a recommendation.
The authors have no personal interest in any fund, track, or institution mentioned here, and receive no payment, commission, or benefit of any kind for mentioning them. Fund names and return figures appear to demonstrate how to read the pensianet rankings, not as a recommendation to choose any fund. Past performance does not indicate future results.
The tool may err, omit data, or present a wrong conclusion, and the figures change every year. Do not rely on this content to transfer money between funds, change an investment track, waive an insurance component, withdraw severance, or make any other pension decision. It is not a substitute for advice that takes into account the particular data and needs of each person, and any decision made on its basis is the sole responsibility of the user.
Most Israelis touch their pension in three moments: when they get their first payslip and see a deduction they did not approve, when a friend says "you are with the wrong fund," and when a relative dies and someone asks who gets the pension. The rest of the time, the pension sits in the background, invisible, and the default decisions made by an employer or the Ministry of Finance compound silently for forty years.
This course is the strategic layer the pension fund's own brochure will never give you. Six chapters. Two anchor questions. Real 2026 numbers. By the end you will know what your pension actually buys you, why you got auto-assigned to one of four default funds, how to read the official comparison portal, and the two and only two reasons to switch funds.
Course Overview
| Chapter | What you walk away with |
|---|---|
| 1. What pension actually buys you | The three products bundled inside every pension fund, and the 2026 numbers that anchor the whole system |
| 2. The two-question decision tree | A reusable framework: do you need a fund (Q1), who inherits if something happens (Q2) |
| 3. Why you got auto-assigned to a default fund | How auto-allocation works since June 2025, which four funds are designated, and why "default" does not mean "best" |
| 4. How to actually compare funds | A no-jargon walkthrough of PensiaNet (pensianet) and the six columns that matter |
| 5. Self-employed pension | Mandatory since 2017, with a tax-benefit ladder most freelancers leave on the table |
| 6. When to switch funds, when to stay put | The two real reasons to switch, and four common reasons that do not hold up |
This is education. It is not pension advice and not pension marketing. For binding recommendations on your specific situation (inheritance planning, leaving Israel, switching mid-career), consult a licensed pension advisor (pension advisor). The course tells you what the levers are and how to read them. The advisor tells you which lever to pull for you.
For ongoing chat-style questions while you work through this material, the sister skill to this course is israeli-pension-advisor at https://agentskills.co.il/skills/israeli-pension-advisor. It answers questions about contribution structure, withdrawal rules, and tax benefits in conversation. Like this course, it deliberately does not recommend specific funds; neither of them will tell you which fund to buy. What this course adds is the structure, so you can read the official comparison portal yourself and take a licensed advisor a sharper question.
Chapter 1: What pension actually buys you
Every pension fund in Israel is three financial products fused into one container. Most people think they bought a retirement account. They actually bought a retirement account plus disability insurance plus survivor benefits, all priced as a package and all governed by one regulator (Capital Market, Insurance and Savings Authority, the Capital Markets, Insurance and Savings Authority).
The three products inside every pension fund
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Retirement income (old-age allowance in the fund context, distinct from Bituach Leumi's old-age allowance). When you stop working, the fund converts your accumulated savings into a monthly payment using an actuarial conversion factor (conversion factor). The factor depends on your age at retirement, life expectancy, and whether you elected a guarantee period for your spouse.
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Disability insurance (loss of work capacity insurance). If you become unable to work, the fund pays a monthly disability allowance. The regulatory cap is 75 percent of your insured salary, but actual coverage in practice is lower: the fund's payment is coordinated (coordination) with any disability benefit you receive from Bituach Leumi (general disability), so the combined gross payout cannot exceed the 75 percent cap. This premium is bundled by regulation and cannot be waived in a comprehensive fund; it comes out of your monthly contribution automatically.
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Survivor benefits (survivors' allowance, pension fund version). If you die, your eligible survivors receive a monthly pension from the fund, paid for life or until the orphan turns 21. The eligible-survivor list and the rules are set by the Capital Markets Authority, not by your will. We unpack this in Chapter 2.
The cost of disability and survivor coverage comes out of your monthly contribution. You cannot buy a "pension fund without insurance" in the Israeli market, but the two halves of the bundle are not equally fixed. Disability cover cannot be waived in a comprehensive fund at all. Survivor cover CAN be waived, by a member who has no spouse and no children, and the premium then goes into your retirement savings instead of buying a benefit nobody is eligible to claim. If that describes you, Chapter 2 comes back to it, because it is one of the few levers in this system that you actually control.
The claim mechanics for the disability product, briefly: if you become unable to work, you (or your family on your behalf) file a claim with the fund. The fund typically requires a medical assessment by their designated reviewers, which commonly takes a few months. Coordination with Bituach Leumi's disability benefit (general disability) is automatic; you do not need to choose between them. If the claim is denied, an internal appeal exists, and a final appeal to the regional labor court (regional labor court) is available.
Two limits on this product that people discover at the worst possible moment.
A five-year clock on pre-existing conditions. A comprehensive fund does cover disability caused by an illness that already existed and was known before you joined, but that cover only takes effect 60 months (five years) after you join the fund. If you have a chronic condition today and you are in your first year in a fund, you are saving into the retirement component but you are not yet insured against that particular condition. This clock is also the reason Chapter 6 treats a fund switch as a serious decision rather than a shopping errand.
"Unable to work" means unable to work at anything. Pension-fund disability cover generally pays only for total loss of capacity to work in ANY occupation suited to your skills, not in the specific profession you trained for. A software engineer who develops a condition that ends her engineering career but leaves her able to do other work will generally not qualify. Manager's-insurance policies (managers' insurance) often do cover own-occupation loss, which is one of the few genuine arguments for that product. Ask your fund which definition your track uses before you assume you are covered.
Section 14 vs. the traditional severance arrangement
One of the most important employer-side decisions affecting your pension is whether your workplace is on a "Section 14 arrangement" (arrangement under Section 14 of the Severance Pay Law). Most modern Israeli workplaces are, but not all, and the difference shapes what happens at termination.
Traditional arrangement (without Section 14): the employer's 8.33 percent severance contribution accumulates in a separate sub-account inside your pension fund. When you leave the job (resignation or termination), the employer owes you a severance lump sum equal to one month's salary per year worked, calculated on your LAST salary at the time of separation. The amount already accumulated in the severance sub-account counts toward the obligation; the employer pays the difference (the completion) from their own pocket. This makes long-tenured separations expensive for employers.
Section 14 arrangement: the employer's 8.33 percent severance contribution is treated as full and final settlement of severance obligations. There is no completion owed at separation. What sits in your severance sub-account IS your severance. The trade-off: the amount reflects each year's contribution at the time, not your last salary. For employees whose salary grew substantially over their tenure, Section 14 can leave them with LESS severance than the traditional arrangement would have. For employees with relatively flat salaries, the two arrangements end up close.
How to know which one you are on: check your employment contract for a clause about arrangement per Section 14, or ask HR. Section 14 is opt-in per employer and once chosen typically applies to all employees of that employer.
The Israeli pension landscape in 60 seconds
| Product | Hebrew | What it actually is |
|---|---|---|
| Pension fund | Pension fund (mostly comprehensive: מקיפה) | The default for almost every Israeli employee or self-employed person. Bundles retirement + disability + survivors. Governed by the Capital Markets Authority. |
| Manager's insurance | Managers' insurance | A different financial product (life insurance with a savings component). Insurers sold policies with a guaranteed conversion factor (guaranteed factor) up to 2012; policies issued from 2013 onward generally do not carry one, which made new managers' insurance much less attractive than a pension fund for most people. Policies sold up to 2012 may carry a guaranteed conversion factor, and because a factor is a divisor rather than a rate, a lower guaranteed factor converts a given balance into a materially larger monthly pension than today's higher factors would; if you have such an old policy, that guarantee is extremely valuable and you should consult a licensed advisor before considering any switch. |
| Provident fund | Provident fund | A tax-advantaged savings account. Does not include disability or survivor coverage. Common as a supplemental layer for self-employed and as the destination for severance pay. |
When this course says "pension fund," it means a comprehensive pension fund (קרן פנסיה מקיפה). That is what virtually everyone reading this is in. The skill israeli-pension-advisor covers the differences in depth if you want the long version.
The 2026 numbers that anchor everything
The Israeli pension system is indexed to two numbers republished every January by Bituach Leumi (National Insurance Institute):
| Number | 2026 value | What it gates |
|---|---|---|
| Average wage in the economy, Section 2 (average wage per Section 2) | ₪13,769 per month | Self-employed contribution bands, and the salary ceiling of the employee mandate |
| Average wage, Section 1 (average wage per Section 1) | ₪13,566 per month | Bituach Leumi benefit calculations (kitzvat zikna, dmei avtala, etc.) |
| Monthly deposit ceiling of a comprehensive fund | ₪5,645.29 per month | 20.5% of twice the average wage. Deposits above this cannot enter a comprehensive pension fund at all |
You will see these numbers again in every later chapter. They flow through the whole system. The reason a self-employed person earning ₪82,614 pays a different rate than one earning ₪82,615 is because ₪82,614 is exactly half of (12 × ₪13,769), the half-average-wage threshold.
The salary ceiling of the mandate, stated correctly. The 2008 extension order does not mandate contributions on your entire salary. It mandates them on the LOWER of your determining salary or the average wage in the economy, which is ₪13,769 per month in 2026. Above that line, whether your employer contributes at all is a matter of your contract or a better collective arrangement (more favorable collective arrangement), not of the extension order. Most Israeli employers do contribute on the full salary, but that is a contractual choice you should verify on your own payslip rather than assume.
And a ceiling in the other direction. Because the state guarantees a return on 30 percent of a comprehensive fund's assets (Chapter 4 explains the mechanism), there is a cap on how much can be deposited into one: 20.5 percent of twice the average wage per month, which is ₪5,645.29 in 2026, counting every component of the contribution. If your total monthly deposit exceeds that, the excess cannot go into your comprehensive pension fund. It goes to a second product, usually a general pension fund (also called supplementary pension fund) or a managers' insurance policy. That second product has NO state-guaranteed sleeve, its own fee schedule, and its own insurance terms. Where it starts to bite depends on your total contribution rate: at the 18.5 percent mandate it is a salary around ₪30,500, and at 20.83 percent (an employer contributing 8.33 percent to severance) it is around ₪27,100. If that is you, you hold two products, not one, and every comparison in Chapter 4 has to be run on both.
The cost of "I will deal with this later"
The most common mistake: deferring the pension conversation for the first two years of your career. Here is what that actually costs.
A salaried employee earning ₪15,000 per month contributes 6 percent of the contribution base. The employer adds 6.5 percent to the tagmulim (retirement) component and 6 percent to the pitzuyim (severance) component, so the mandated total is 18.5 percent: 6 percent from the employee and 12.5 percent from the employer. Two numbers commonly confuse people here. First, 8.33 percent is NOT the mandatory severance rate. It is a higher rate the employer MAY elect (and many do, because it is what buys the full Section 14 exemption described above), which takes the employer side to 14.83 percent and the total to 20.83 percent. Second, the mandated base is capped at the average wage, so on a ₪15,000 salary the extension order only compels 18.5 percent of ₪13,769, about ₪2,547 per month; an employer contributing on the full ₪15,000 is giving you about ₪2,775, and one at the 8.33 percent severance rate on full salary about ₪3,124. Which of those three you are actually getting is written on your payslip, and the difference over a career is six figures. Two years of not actively choosing a fund means two years inside whatever fund the employer picked as the workplace default. If that workplace default happens to be one of the four designated default funds covered in Chapter 3, fees are capped at 0.22 percent on accumulation and 1 percent on deposits. If you DID actively pick a fund outside the four, or you are in a workplace arrangement negotiated with a specific non-tender fund, the fees can be substantially higher and nothing caps them at the tender rate. Either way, two years of not checking the 5-year cumulative return your fund delivered is two years of compounding the wrong choice. Chapter 4 fixes that.
The fix for Chapter 1 is simpler: in the next 10 minutes, open your last payslip (payslip), find the line that says "קרן פנסיה" ("pension fund") or "פנסיה" ("pension"), and write down (a) the name of the fund and (b) the deposit percentage. You now know what you are in. Chapter 2 tells you whether it is the right shape for your life situation.
Chapter 2: The two-question decision tree
Every pension question worth asking reduces to two: do you need a fund right now, and who inherits if something happens to you tomorrow? Most Israelis answer Q1 correctly (employer enrolls them automatically) and then never think about Q2 again. That asymmetry is the single largest source of preventable financial mistakes in Israeli pension.
Q1: Do you need a pension fund right now?
Israeli pension is mandatory in three different ways for three different audiences. The decision tree:
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Salaried employee with pension coverage that is still active when you start. Entitled from day 1 on the new job. The money itself is transferred after three months of work or at the end of the tax year, whichever comes first, and it is paid retroactively back to your first day. (Case law treats coverage that lapsed for more than about five months before you started as no coverage at all, which puts you in the next bullet instead.)
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Salaried employee with NO active pension coverage (first job, or back from a long break). You are entitled only AFTER six months at that employer, and there is no retroactivity for those first six months. This is the single most misreported rule in Israeli pension: you do not get back-paid for months 1 to 6, you simply are not covered during them. Plan for the gap rather than expecting a catch-up payment.
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Under 21 (men) or under 20 (women). The extension order does not reach you yet. Entitlement starts at 21 for men and 20 for women. Work done before that age still counts toward the six-month waiting period, so a man who starts work seven months before his 21st birthday is entitled the day he turns 21, not six months later.
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Whoever you are, the deposit has a deadline. Your employer must transfer the money to the fund within 7 business days of paying the salary, or within 15 days of the end of the month the salary is for, whichever is earlier. Late transfers carry compounding default interest. That deadline is what turns "my payslip shows a deduction" into a checkable claim: if the fund's portal does not show the deposit after those dates, it was not transferred.
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Self-employed (osek patur or osek murshe). Mandatory since the 2017 Mandatory Pension for the Self-Employed Law. You enroll yourself directly with a fund. Penalty for non-compliance: roughly ₪500 per year, which is so low that many self-employed people pay the fine and skip the contribution. Chapter 5 explains why that math is wrong (you are leaving thousands of shekels of tax benefit on the table).
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Student / part-time at one job / contractor invoicing through a personal account. It depends on your status: if you are W2 (employee) at any percentage, you fall under the employee mandate. If you invoice as an self-employed business operator, the self-employed mandate applies. There is no exempt category for "I only work a few hours." The only real exemption is age, covered in the bullet above.
If you are in any of the first three categories and you are not currently contributing, you have a problem to fix this week, not next year.
Q2: Who inherits if something happens to you tomorrow?
This is where many Israelis make a quiet, expensive mistake. The pension fund's survivor rules are NOT set by your will. They are set by the fund's regulation (fund regulations), and the eligibility definitions of "spouse" and "orphan" are referenced from the Bituach Leumi statutory definitions.
Eligible survivors, in order:
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Spouse (widower/widow or common-law partner). Common-law partners count, including same-sex partners. A surviving spouse receives the pension fund's survivor pension regardless of their own income. (Note: do not confuse this with Bituach Leumi's separate survivor benefit (survivor benefit from Bituach Leumi), which applies an income test in some cases, for instance to a widower with no orphan in his care. Pension fund survivor pension and Bituach Leumi survivor benefit are two different programs.)
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Orphan (orphan). Any child of the deceased under age 21. They receive a monthly pension until they turn 21. Some funds extend coverage during mandatory military or national service, and exception rules exist for orphans in higher education.
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Disabled adult orphan or dependent parent. Specific eligibility rules, mostly tied to financial dependence on the deceased. A disabled adult orphan (orphan with permanent disability) may receive lifetime survivor pension under separate provisions of the fund's regulations.
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If none of the above exist: the accumulated savings are paid out as a lump sum to your designated beneficiaries (the form you fill in at the fund). If you never filled in that form, the money goes to your legal heirs via court order (inheritance order or probate order). The court order process commonly takes months and incurs lawyer/court fees that vary widely depending on contestation and complexity; budget for it before the need arises.
If item 4 is you, there is a lever most people never hear about. A member with no spouse and no children is allowed to WAIVE the survivors component. The premium you are currently paying for it goes into your retirement savings instead, which raises the monthly pension you will eventually draw. You are not buying anything today with that money: if you died tomorrow, the fund would pay the accumulated balance to your named beneficiaries anyway, whether or not you carried survivor cover. Two conditions attach. First, you must actually have no eligible survivors; if you marry or have a child, you should reverse the waiver, and this is a change nobody will make for you. Second, waiving is a form you file with the fund, not a default. Ask your fund about a insurance track without a survivors component and confirm what happens if your circumstances change. Disability cover is a different matter and cannot be waived in a comprehensive fund at all.
Two scenarios that play out very differently
Scenario A: Married, 2 kids, no will, beneficiary form never updated. You die. Spouse gets monthly pension for life. Both kids get monthly orphan pension until 21. Smooth, regulated, fast. The "no will" detail does not matter here because survivor pension is regulated, not testamentary.
Scenario B: Divorced, no children, beneficiary form still names ex-spouse from 8 years ago. You die. The fund pays the lump sum to the named beneficiary (your ex). Your current partner (not registered as common-law) gets nothing. Your parents get nothing. This is the most common avoidable mistake in the Israeli pension system, and it is fixed by 5 minutes on your fund's website.
The most common mistake in Q2: never updating the beneficiary form after marriage, divorce, the birth of a child, or the death of a parent. Open your fund's portal this week. Find the form called beneficiary appointment agreement or beneficiary declaration form. Update it.
For more nuanced cases (the spouse income test, common-law without registration, blended families), the israeli-pension-advisor skill walks through the specific rules in conversation. The course gives you the framework; the skill answers the specific question.
Chapter 3: Why you got auto-assigned to a default fund
In June 2025 the Ministry of Finance turned on a rule that quietly affects every new Israeli employee at a company with 50 or more workers: if you do not tell your employer which pension fund you want, they enrol you in one of four designated default funds, chosen by the check digit of your Israeli ID number. There is no published grace period, so treat the decision as due at enrolment rather than assuming you have weeks to think. This chapter explains the mechanism, names the four funds, and answers the question every reader has by now: is the default fund the BEST fund, or just a CONVENIENT one?
The four default funds, 2021 through 2028
Every three to four years, the Capital Markets Authority runs a tender (default pension-fund tender) and selects the funds that will serve as defaults for the next period. The current designation runs from November 1, 2021 through October 31, 2028. The four funds:
| Fund | Hebrew name | Operator type |
|---|---|---|
| Altshuler Shaham Pension | Altshuler Shaham Provident Funds and Pension | Investment house |
| Meitav | Meitav Investment House | Investment house |
| Mor Gemel ve-Pension | Mor Provident Funds | Investment house |
| Infiniti | Infinity Hishtalmut and Provident Fund Management | Investment house |
Notice what is NOT on this list: the large traditional insurance houses (Migdal, Menorah Mivtachim, Harel, Phoenix, Clal). They run pension funds, but they are not part of the current default tender. That is a regulatory decision by the Capital Markets Authority, not a quality judgment.
Auto-allocation: how you get assigned
Since June 2025, if you join a company with 50 or more employees and do not pick a fund, you are allocated by your ID check digit:
| Last digit of your ID | Allocated to |
|---|---|
| 0 or 1 | Meitav |
| 2 or 3 | Altshuler Shaham |
| 4, 5, or 6 | Mor |
| 7, 8, or 9 | Infiniti |
An employer with fewer than 50 employees is not bound to the ID-digit mapping, but the discretion is narrower than it sounds: they may choose which of the four designated funds to enrol you in, not any fund on the market, and they must give the fund a lawyer-certified declaration that they employ fewer than 50 people. So whichever size your employer is, an employee who does not choose ends up inside the four, which is also why the fee cap below applies to you by default.
The regulated fee cap during the default period
In exchange for being designated, the four default funds agree to a regulated fee ceiling that lasts the full default period, applicable to anyone who joins one of these four funds (whether through auto-allocation or by active choice):
"The maximum management fees for the four selected pension funds: 0.22% of accumulated assets, 1% of deposits."
Translation: maximum management fees for the four selected pension funds are 0.22 percent of accumulated savings and 1 percent of new deposits. That is the lowest regulated fee tier in the market. By comparison, the regulatory MAXIMUM for any pension fund is 0.5 percent on accumulation and 6 percent on deposits; and a fund outside the four is free to charge anywhere up to that maximum, with collectively-bargained workplace agreements often securing lower rates. Do not guess where your fund sits in that span; the actual rate is on your annual statement and on pensianet. The point is that fees vary widely outside the four designated funds, and grandfathered fee schedules from older contracts may persist even if a fund's current rate card looks competitive.
So is the default fund the BEST fund?
No. It is the fund with the regulated-cap fees. Fees are one of two axes that determine your 40-year outcome; returns are the other. The default-fund mechanism guarantees the first axis (low fees) but not the second (high returns).
In the 5-year cumulative returns published by the official PensiaNet portal at the end of 2025, the top three positions in the age-based tracks (the relevant tracks for most Israelis) were taken by Phoenix, Clal, and Meitav. Of those three, only Meitav is a default fund. Phoenix and Clal are not in the current default tender at all.
Meaning: an Israeli who got auto-allocated to Meitav is in a fund with both regulated-cap fees AND a top-3 long-term return record. An Israeli auto-allocated to one of the other three default funds got the fees but not (necessarily) the returns.
The most common mistake in Chapter 3: assuming the default fund's regulated fees compensate for any return difference. They often do (the fee gap can be substantial and compounds over decades), but a meaningfully lower return on the same time window can wipe out the fee advantage. The right way to check is to compare your fund's 5-year cumulative return to the same-track cohort leaders, which is exactly what Chapter 4 walks through.
For Israeli employees who want to verify which fund their employer enrolled them in, and how the auto-allocation rule interacts with mandatory contributions from Bituach Leumi (such as the old-age pension layer old-age pension), the israeli-bituach-leumi skill is at https://agentskills.co.il/skills/israeli-bituach-leumi.
Chapter 4: How to actually compare funds (fees + returns)
This is the chapter where you do the work. The official comparison tool in Israel is PensiaNet (pensianet.cma.gov.il), run by the Capital Markets Authority. It is the only data source you can trust for fund-level comparisons because every fund is required to report to it. Bloggers, brokers, and YouTube influencers all derive their numbers from PensiaNet or its sibling Supermarker ( run by The Marker which pulls from pensianet). Go to the source.
The six columns that actually matter
When you open PensiaNet and view a fund's profile, there are dozens of fields. Six of them carry 95 percent of the signal:
| Column | What it tells you | Why it matters |
|---|---|---|
| deposit fee | Percent of every new contribution taken by the fund | Charged on every monthly payment for 40 years. A 1 percent gap here compounds dramatically. |
| accumulation fee | Percent of your entire savings balance taken annually | The bigger your balance, the more this hurts. A 0.2 percent gap on ₪500,000 is ₪1,000/year. |
| 12-month return | Trailing 12-month return | Noisy. Useful only to spot something catastrophic. Do not switch funds on this number alone. |
| average 3-year return | 3-year annualized return | Better signal. Smooths most market noise. |
| average 5-year return | 5-year annualized return | The most reliable single column. Long enough to span a market cycle, short enough to reflect current management. |
| cumulative 5-year return | 5-year cumulative return | Easiest to compare across funds. This is what we use below. |
Why Israeli pension returns look lower than US 401(k) returns
A common confusion: a US 401(k) with an S&P 500 index allocation might show a 5-year cumulative return north of 80 percent. An Israeli pension fund's general track for the same period shows maybe 35-50 percent. That is not because Israeli fund managers are worse. It is because the Israeli state guarantees a yield floor on a portion of pension assets, which structurally caps equity exposure.
Until October 2022 the mechanism was called designated bonds: the state issued special bonds that 30 percent of each fund's assets had to hold, paying a regulated yield. In October 2022 a reform (within the late-2021 Economic Arrangements Law) replaced that with a new mechanism, yield-guarantee mechanism: for new contributions, the state guarantees a 5.15 percent real annual return on 30 percent of fund assets through a dedicated reserve fund. Older money continues under the designated-bonds rule until those bonds mature. Either way, the practical effect for the saver is the same: 30 percent of your contributions are in a state-backed yield-floor sleeve, which is why your fund's headline equity exposure (and thus its upside in good market years) looks lower than a US 401(k) with a 100 percent equity allocation.
In the EQUITY track (equity track), Menorah Mivtachim led both comparisons published at the end of 2025: about 21.8 percent for the year and about 81.4 percent cumulative over five years. Note the track: in the age-based tracks that most employees are actually in, the five-year leaders were Phoenix, Clal and Meitav, as Chapter 3 said. Comparing a fund's equity-track number against your own age-based track is the single easiest way to talk yourself into a bad switch. The equity track is NOT the default for most employees. The default for most employees is the age-appropriate track (50- / 50-60 / 60+), where the regulated state-backed sleeve plus age-targeted equity allocation produces materially more conservative returns.
Past performance does not guarantee future results. The fund names above are mentioned to illustrate how to read the official PensiaNet rankings; they are not a recommendation to choose any specific fund.
Worked example: fees over 30 years
Two pension paths, identical contributions (₪3,000/month, growing 2 percent per year), identical 5 percent annual gross return, different fees.
| Path | Deposit fee | Accumulation fee | Ending balance after 30 years |
|---|---|---|---|
| Default fund (regulated cap) | 1.00% | 0.22% | ₪3.01M |
| Typical non-default with no discount | 2.50% | 0.50% | ₪2.82M |
The model behind those two numbers, so you can rerun it: each month the contribution goes in net of the deposit fee, the balance grows at 5 percent a year compounded monthly, and the accumulation fee is charged monthly at one twelfth of the annual rate. The fee gap costs about ₪183,000 over 30 years on a single contributor, roughly ₪366,000 for a couple on identical paths. Note how much of the outcome is NOT the fee: the same model with a 4 percent return instead of 5 percent costs the default-fund saver about ₪460,000, more than twice what the entire fee gap is worth. The fee column matters more than people think. The return column matters more still, but only if you actually check the 5-year cumulative figure rather than picking on last quarter's headline.
A note on old defined-benefit pensions (old defined-benefit pension funds)
Some Israelis (especially older public-sector employees, or those who started working before 2003) are members of an "old fund" (old pension fund): Mivtachim Vatika, Maccabi Vatika, and similar. These are defined-benefit plans, not the defined-contribution funds covered in this course. The pension benefit is calculated by a formula based on tenure and final salary, not by what you accumulated. If you are a member of one of these funds, the entire framework in this course (fee comparison, fund switching, return tracking) does NOT apply to that portion of your pension. Consult a pension advisor specifically familiar with old funds; the rules are an entirely separate body of regulation, and several of the old funds are in long-term financial restructuring with their own special protections and risks.
The "switching cost" trap
The marketing for pension switching firms (pension agents / agency firms) emphasizes the savings from moving to a lower-fee fund. They are usually right. But three real costs of switching often go unmentioned:
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Insurance underwriting and pre-existing conditions. Under the standard regulations (standard regulation) for comprehensive pension funds, a direct transfer between two comprehensive funds preserves your original qualifying period (qualifying period), so pre-existing conditions covered by your current fund typically remain covered after the move. The risk is a BREAK in coverage: any gap (even brief) can reset the underwriting clock, re-exposing chronic illnesses to exclusion or higher pricing. If you have any pre-existing condition, do NOT initiate a transfer without first consulting a licensed pension advisor and getting written confirmation from the new fund about coverage continuity. The cost of consulting an advisor is trivial compared to losing disability or survivor coverage entirely.
There is also a sequencing trap here that costs people their accrued seniority for purely procedural reasons. Moving money into a fund you have never deposited into can cancel the seniority you built in the old one. The fix is order of operations: start depositing into the new fund FIRST, and only once deposits are actually running there, send the transfer request to the old fund. Do it in the other order and the new fund may treat you as a brand-new member.
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Timing of the transfer. Some funds settle the transfer mid-month, others mid-quarter. A bad timing can mean 4-8 weeks where you have less coverage than you should.
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Year-end accounting. Switching mid-year can complicate your annual tax statement (Form 161). It is not a deal-breaker, but plan for the bookkeeping.
The most common mistake in Chapter 4: switching funds based on a single year's return number. The fix: always look at the 5-year cumulative column. If the 5-year cumulative gap between your current fund and the cohort leader is less than 5 percent (cumulative, not annualized), do not switch. The friction is not worth it.
For payslip-level verification that your employer is actually depositing the correct contribution amount (you would be surprised how often the deduction line and the actual deposit do not match), the israeli-payroll-calculator skill at https://agentskills.co.il/skills/israeli-payroll-calculator is the right cross-check tool.
Chapter 5: Self-employed pension (mandatory since 2017)
If you are an osek patur or osek murshe, you are required by law to contribute to a pension fund. The law is called Mandatory Pension for the Self-Employed Law, in force since January 2017. The penalty for non-compliance is approximately ₪500 per year, which is so low that many self-employed people just pay the fine and skip the contribution. They are leaving an order of magnitude more in tax benefit on the table than the fine costs. This chapter explains why, with the 2026 numbers.
The 2026 contribution bands
Self-employed pension contributions are calculated on your annual taxable income (taxable income), in two bands tied to the average wage (₪13,769/month × 12 = ₪165,228/year):
| Annual income band | Mandatory contribution rate | What it covers |
|---|---|---|
| Income up to ₪82,614 (half of average wage × 12) | 4.45% | The minimum to satisfy the mandate |
| Income from ₪82,615 to ₪165,228 (between half and full average wage) | 12.55% | Mandate on the next slice |
| Income above ₪165,228 | Voluntary (but tax-advantaged) | See tax benefits below |
A self-employed person earning ₪120,000/year falls partly in the low band (4.45% on the first ₪82,614 = ₪3,676) and partly in the high band (12.55% on the next ₪37,386 = ₪4,692), for a total mandatory contribution of approximately ₪8,368/year. Skipping it costs ₪500 in fines. Doing it right unlocks the tax benefit ladder described next.
The 2026 tax benefit ladder
This is what self-employed people miss when they "just pay the fine." The benefit comes through two parallel channels, both measured against your qualifying income, which is capped at ₪232,800 per year in 2026.
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Deduction channel (deduction, Section 47), up to 11 percent of qualifying income, capped at ₪25,608/year. A self-employed person at the ₪232,800 ceiling hits this cap by contributing ₪25,608. This portion comes off your taxable income, so what it is worth depends entirely on the tax bracket the money would otherwise have sat in.
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Credit channel (tax credit, Section 45A), an additional 5.5 percent of qualifying income, capped at ₪12,804/year, earning a flat 35 percent credit. On top of the deduction you can contribute another 5.5 percent (up to ₪12,804 at the ceiling), and the tax authority returns 35 percent of that contribution directly off your tax bill. At the cap that credit is ₪4,481. Unlike the deduction, this one does not depend on your bracket.
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Combined tax-advantaged cap: 16.5 percent of qualifying income, up to ₪38,412/year. The two channels apply to two stacked slices of the SAME income (the first 11 percent and the next 5.5 percent). They do not double up on the same money.
The ₪38,412 has a precondition, and it changes what the ladder is worth at ordinary incomes. Qualifying income splits into two equal tiers of ₪116,400. The first tier is available to anyone. The second tier is available only to an preferred member ("preferred member"), a status you earn by depositing at least 16 percent of the average wage into a pension product that year: about ₪2,203 a month, ₪26,436 for the year, in 2026.
That creates a threshold effect people walk straight into. Depositing 16.5 percent of the first tier is ₪19,206, which is real money and still does not make you an preferred member. The published planning figures for a saver at the ceiling income are these: the deposit needed to use the whole benefit is ₪45,060 for the year, of which ₪38,412 carries a tax benefit and the remaining ₪6,648 carries none. We are quoting those two figures rather than deriving them, because the rule that produces the gap between them is not stated on the source page. The practical instruction survives either way: budget ₪45,060, not ₪38,412, and do not be surprised when the last few thousand shekels buy you nothing at tax time.
Below the ceiling the threshold bites harder, and this is the part worth checking against your own income before you plan around any figure in this chapter. A self-employed person earning ₪120,000 who contributes 16.5 percent puts in ₪19,800, which is under ₪26,436. They are not an preferred member, so the second tier is not open to them, and no percentage-of-income contribution gets them there: below roughly ₪160,000 of income, 16.5 percent of income is less than the threshold. They could deposit ₪26,436 outright to cross it, but at that income it is usually a poor trade, because most of the extra deposit buys no benefit. At ₪120,000 the honest planning number is the first tier, not the full ladder. The freelancer in the worked example below, contributing ₪33,000, does clear ₪26,436, and that is the real argument for the optimised path rather than the headline percentage.
What the benefit is actually worth, with the bracket stated. This is where published figures are usually wrong, because they quietly assume a 35 percent marginal rate. In 2026 the brackets on earned income run 20 percent up to ₪228,000, 31 percent from ₪228,001 to ₪301,200, and 35 percent from ₪301,201. So a self-employed person sitting exactly at the ₪232,800 ceiling is at a 31 percent margin, and the ₪25,608 deduction drags their taxable income down to ₪207,192, crossing back under ₪228,000 into the 20 percent band on the way:
| Slice | Amount | Rate relieved at | Tax saved |
|---|---|---|---|
| Deduction, part above ₪228,000 | ₪4,800 | 31% | ₪1,488 |
| Deduction, part below ₪228,000 | ₪20,808 | 20% | ₪4,162 |
| Credit channel | ₪12,804 deposited | flat 35% credit | ₪4,481 |
| Total | ₪38,412 deposited | about ₪10,131 |
A 35 percent marginal rate on the whole deduction would need taxable income of roughly ₪326,808, which is well above the ₪232,800 ceiling in the same sentence. If you see "₪13,400 of tax saved at the cap" quoted anywhere, that is the inconsistency you are looking at.
For incomes below the ceiling, the percentages scale down: a self-employed person earning ₪120,000 can deduct up to 11 percent (₪13,200) and contribute another 5.5 percent (₪6,600) into the credit channel, with the deduction relieved at whatever bracket that income sits in, subject to the first-tier limit described above.
One more caveat on the 16.5 percent: it applies to a saver who is not separately buying loss-of-work-capacity cover out of the same deposit. If you are, the benefit-bearing share is 16 percent rather than 16.5 percent.
The fine for non-compliance is ₪500. The forgone tax benefit runs to five figures. The math does not require a calculator.
Worked example: ₪200k/year freelancer
A freelancer with ₪200,000 in taxable income in 2026. The numbers below are approximations to illustrate the structure; your accountant should compute your exact figures, since the deduction and credit channels can interact with other deductions on your return.
Taxable income of ₪200,000 sits inside the 20 percent bracket (₪120,721 to ₪228,000), so every shekel of deduction here is relieved at 20 percent. The mandate itself stops at the average wage: there is no mandatory contribution on the ₪34,772 of income above ₪165,228.
| Strategy | Contribution | Pension savings accrued | Approximate net tax effect |
|---|---|---|---|
| Pay the fine, contribute nothing | ₪0 | ₪0 | ₪0, plus a ₪500 fine |
| Mandatory minimum only | ₪14,044 (4.45% on the first ₪82,614 = ₪3,676, plus 12.55% on the next ₪82,614 = ₪10,368) | ₪14,044 in fund | About ₪2,809 less tax (₪14,044 deducted at 20%). Below the ₪26,436 preferred member threshold |
| Optimized for full tax channels | ₪33,000 (16.5% of ₪200,000) | ₪33,000 in fund | About ₪8,250 less tax (₪22,000 deducted at 20% = ₪4,400, plus a 35% credit on ₪11,000 = ₪3,850). Clears the ₪26,436 threshold |
The third path requires the freelancer to put roughly ₪18,956 of additional cash into the pension fund beyond the mandatory minimum. In exchange, the fund balance grows by that same ₪18,956 of locked-in retirement savings AND the tax bill falls by a further ₪5,441 compared with the minimum-only path. This is tax efficiency, not investment return: the additional ₪18,956 is your own money, locked in the fund until age 60+, subject to fees and market risk. Treat it as "I am moving money I would have paid in tax into a long-term savings account that holds it for me" rather than as a return on capital.
Pairing strategy: keren pensia + keren hishtalmut
The full self-employed tax stack is not just the pension fund. The next layer is training fund, a separate provident-fund product with its own deduction cap (covered in detail by the israeli-pension-advisor skill and by the israeli-freelancer-year course's chapter 4). The combined annual ceiling across pension + keren hishtalmut is substantial for a high-earning self-employed person; most freelancers structure their year around hitting both ceilings rather than just the pension cap. Your accountant should run your specific numbers.
The most common mistake in Chapter 5: paying the fine to skip the mandate. The fix: open your annual tax planning conversation with your accountant by asking "how do I max out the pension + keren hishtalmut tax stack this year?" and adjust monthly cash flow to hit it.
For ongoing detailed questions about which contribution channel fits which scenario (and especially for the keren hishtalmut layer), the israeli-pension-advisor skill is the right tool. The course gets you to the planning conversation; the skill walks you through the line-item math.
Chapter 6: When to switch funds, and when to stay put
You have a fund. You know how to compare it to alternatives. The remaining question is the practical one: should you switch, and if so, when? The marketing pressure from switching firms (pension agents) is constant, and most of it is wrong. Two reasons to switch hold up under scrutiny. Four common reasons do not.
The two switch reasons that hold up
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Your current fund's fees exceed the default-fund cap by a meaningful margin. If you are paying more than 1 percent on deposits or more than 0.22 percent on accumulation, and your fund is not delivering a 5-year cumulative return that beats the default cohort by at least 5 percentage points, the fee gap is taking money from you with no offsetting benefit. That is the pattern people usually take to a licensed advisor, and the questions to bring are the ones in this chapter: what is my qualifying period today, what happens to it on a transfer, and what fee will the new fund actually commit to in writing.
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Your 5-year cumulative return is more than 5 percentage points below the cohort leader in the same track. Funds report by track (general, equity, age-based 50- / 50-60 / 60+). Compare apples to apples. If your fund is more than 5 cumulative pp behind the same-track leader over 5 years and you have ruled out a structural reason (different equity exposure, different fee structure), management quality is meaningfully different, and that difference is worth raising with a licensed advisor before you act on it.
The four switch reasons that do NOT hold up
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One bad quarter or one bad year. Markets cycle. A single 12-month underperformance is statistical noise, not signal. Wait for the 5-year cumulative number to confirm.
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A friend, coworker, or family member said your fund is bad. They usually mean "their" fund is better, which is not a comparison. Ask them for the 5-year cumulative number for your fund AND theirs in the same track. They will not have it.
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Your employer pressures you to move to a different fund. Employers in Israel cannot legally force a fund choice (since the 2008 mandatory pension extension order). They can have a "workplace default," but you may opt for any approved fund. If pressure persists, the Ministry of Labor (Ministry of Labor) takes complaints.
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A pension agent (pension agent) cold-called you with a "limited-time offer" on management fees. Every fund will negotiate fees with a credible threat to switch. Get the offer in writing, then call your current fund and ask if they will match. They usually will.
The "leave it to my adult kids" mistake
A common misconception, especially among Israelis without minor children or a spouse: "my pension will go to my adult kids as inheritance when I die." That is not how the survivor mechanism works.
If you die before retirement and have no eligible survivors (no spouse, no minor children, no disabled adult orphan, no dependent parent), your accumulated savings convert into a lump sum, NOT into a monthly survivor pension. The lump sum goes to your designated beneficiaries (the form mentioned in Chapter 2). If you never designated beneficiaries, it goes to your legal heirs via court order (inheritance order or probate order), which incurs court and lawyer fees that vary widely (from minimal for a self-filed uncontested case to substantially higher if anyone contests) and typically takes months to complete.
Adult kids will eventually receive the lump sum if you name them. They will NOT receive a monthly survivor pension because adult children are not in the eligible-survivor list. The fund is a retirement and disability-and-survivor product, not an estate-planning vehicle. If you want to leave assets to adult children efficiently, do it through a separate kupat gemel (provident fund), a savings policy (savings policy), or non-pension financial assets where the inheritance mechanism is simpler.
What happens at a job change
A job change is the most common moment Israelis revisit their pension. Three things move (or do not move) automatically:
- Your fund follows you, automatically. Your pension fund account is yours, not your employer's. When you switch jobs, your new employer continues contributions to the SAME fund unless you actively request a transfer to a different one. Your accumulated balance does not reset.
- Severance handling depends on Section 14 (see Chapter 1 if you skipped it). On a Section 14 employer, what is already in your severance sub-account is yours, period. On a non-Section 14 employer, you may negotiate a severance settlement at the time of separation, which can land in the severance sub-account or as a separate payment.
- Disability and survivor coverage depends on contributions continuing, and the deadline is exactly five months. When regular deposits stop (a gap between jobs, unpaid leave, a business slowdown), you have five months from the last regular deposit to a pension fund to arrange a risk-only insurance arrangement, a risk-only arrangement where you pay a reduced premium to keep the insurance alive. Do it inside the five months and you keep your existing terms, avoid fresh underwriting, and in some cases preserve your conversion factor. Miss the window and you can still buy cover, but you buy it as a new member on your CURRENT health and CURRENT income, which is precisely the wrong basis if anything has changed. For managers' insurance policy the same deadline is three months, not five. Note also that a risk-only insurance arrangement does not add to your savings and does not accrue accrued seniority.
The decision point at a job change: should you take the opportunity to switch funds (since you are revisiting the topic anyway)? Apply the framework above: only switch if you are paying more than the default-fund fee cap AND your 5-year cumulative return is meaningfully below the cohort. A job change is a convenient moment to switch; it is not a reason to switch by itself.
What actually happens at retirement
The course has focused on the pre-retirement period: choosing, contributing, monitoring. The retirement event itself has its own mechanics worth understanding before you reach it.
The eligible retirement age is 67 for men and 62-65 for women (rising on a published schedule toward 65 for women born after specific cutoff years). At eligible age, you have three choices:
- Convert to a monthly pension (monthly pension). Your accumulated savings are converted using the actuarial conversion factor. If your savings are ₪1,500,000 and your factor is 220, your monthly pension is roughly ₪6,818 (₪1,500,000 / 220). The factor depends on your age at retirement, life expectancy at that age, and whether you elect a guarantee period for your spouse.
- Lump-sum withdrawal (pension commutation). A portion of the accumulated balance can be withdrawn as a lump sum. The exact percentage and tax treatment depend on the date you started contributing, the size of your retirement balance versus the minimum pension floor, and your other pension assets. The lump sum is taxed under its own schedule, which differs from the monthly-pension taxation.
- Combination. Take part as a lump sum and convert the rest to a monthly pension. Most retirees do some version of this.
The monthly pension is taxed as ordinary income, with the elderly tax credit (elderly tax credit) applied. The lump sum has a separate taxation track that takes into account your tenure and the period over which contributions accumulated.
Two timing decisions that materially affect the outcome:
- Defer retirement past the eligible age. The conversion factor improves (you have fewer expected years of payout), so your monthly pension is larger per shekel saved. Common move for those who can keep working and want to maximize income later.
- Re-think the track in the last 5 years. Some funds glide your allocation to more conservative tracks automatically as retirement nears. Some retirees benefit from staying in a higher-equity track longer; others prefer the conservative glide. This is the textbook conversation to have with a licensed pension advisor before age 60, not at age 67.
When to consult a licensed pension advisor
This course covers the strategic framework. There are five situations where the framework is not enough and you should pay for one or two hours of a licensed pension advisor's time:
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You are leaving Israel for more than three years (relocation, retirement abroad, or extended sabbatical). The interaction with returning citizen / returning resident rules and the question of redeeming versus freezing your fund is complex.
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You are considering switching mid-career and you have a pre-existing medical condition that might re-open in underwriting.
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You have a blended family (children from multiple marriages) and want to structure beneficiary designations to protect specific dependents.
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You are within 5 years of retirement and need to model the conversion factor (actuarial conversion factor) under different scenarios (lump sum vs. monthly pension, with vs. without spouse guarantee period).
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You are self-employed with income variance higher than 30 percent year-over-year and need to plan the tax-stack contribution timing.
For situations 1-4, ask the advisor to provide their license number (license type: pension advisor, regulated by the Capital Markets Authority). For situation 5, an accountant (accountant) is usually the right starting point, with a pension advisor as a second opinion if the numbers are large.
Closing note
This course is education. It is not pension advice and not pension marketing. The frameworks teach you how to think about your pension; they do not tell you which specific fund or track to choose, and no part of this course should be read as a recommendation to buy, switch, or waive anything. The 2026 numbers in this course (average wage, contribution rates, fee caps, tax benefit ceilings) are accurate as of publication and will be updated each January when Bituach Leumi republishes the average wage. For the recurring conversation as your situation changes (new job, kids, divorce, leaving Israel), come back to israeli-pension-advisor at https://agentskills.co.il/skills/israeli-pension-advisor and chat with it. The course is what you read once; the skill is what you query repeatedly.
For the government-side layer of your retirement income (Bituach Leumi's old-age pension, eligibility ages, kollel impacts, foreign-residence rules), israeli-bituach-leumi is at https://agentskills.co.il/skills/israeli-bituach-leumi. For verifying your monthly payslip deductions match what the fund actually received, israeli-payroll-calculator is at https://agentskills.co.il/skills/israeli-payroll-calculator. Each tool answers a different question; together they cover the full ground.
Companion skills
The course covers the strategy. These skills do the mechanical work of calculation and verification. Install them in your AI assistant and revisit them whenever your situation changes (new job, kids, divorce, leaving Israel).
- Israeli Pension Advisor (
israeli-pension-advisor), optimal keren hishtalmut and pension contribution amounts, plus Tikun 190 and form 161 handling. Install:npx skills-il add skills-il/tax-and-finance/israeli-pension-advisor - Israeli Bituach Leumi (
israeli-bituach-leumi), the government layer: old-age pension, eligibility ages, and returning-resident rules. Install:npx skills-il add skills-il/government-services/israeli-bituach-leumi - Israeli Payroll Calculator (
israeli-payroll-calculator), verifying that monthly payslip deductions match what the fund actually received. Install:npx skills-il add skills-il/accounting/israeli-payroll-calculator - The Israeli Freelancer Year (
israeli-freelancer-year), a companion course for the self-employed who need to time keren hishtalmut contributions alongside their mkdamot strategy. Install:npx skills-il add skills-il/courses/israeli-freelancer-year