Enter your total pension pot and expected annual withdrawal to compute the exempt portion, taxable portion, tax at 15 percent, and annual net pension income.
Annual net pension income
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Annual gross withdrawal
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Exempt portion (35 percent of pot)
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Taxable portion (65 percent of pot)
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Annual tax at 15 percent
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Your breakdown
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How the kitzba pturah exemption works in practice
When an Israeli retiree begins drawing their pension, the total accrued amount in the pension fund is first split into the exempt portion (35%) and the taxable portion (65%). This split is applied proportionally to every annual or monthly withdrawal. So if you withdraw 120,000 ILS in a year, approximately 42,000 ILS (35%) is tax-free and 78,000 ILS (65%) is taxed at the flat 15% rate. The annual tax is therefore about 11,700 ILS, and your net income is about 108,300 ILS. This is far more tax-efficient than if the full 120,000 ILS were treated as salary income, where the tax at marginal rates could easily exceed 30,000 ILS.
Comparison with ordinary income tax
For a retiree with no other income, 120,000 ILS in annual pension is equivalent to a monthly income of 10,000 ILS. If this were taxed as ordinary income (salary), the tax after credit points would be roughly 12,000 to 15,000 ILS per year. Under the pension rules, the tax is about 11,700 ILS on the taxable 65%, but 35% is entirely free. The net difference may seem small at first, but for larger pensions (say, 300,000 ILS per year), the tax saving from the 35% exemption and reduced 15% rate is substantial and amounts to tens of thousands of shekels annually.
Planning around the pension tax rules
For Israelis with significant pension pots, the planning question is how to sequence withdrawals alongside other income sources. Taking pension income alongside rental income or investment income in the same year means all income is aggregated for the purpose of credit points, but the pension tax is still calculated on the 35/65 split with the 15% rate. Making voluntary additional pension contributions during your working years (see salary sacrifice calculator) increases the pot size and therefore both the exempt and taxable amounts at retirement. A licensed pension adviser (yoetz pensia) or accountant (roeh heshbon) can model the optimal withdrawal strategy for your specific situation.