Pension and study funds for the self-employed
The pension requirement for the self-employed has existed since 2017, and plenty of freelancers still discover it when a letter arrives. At the same time, the tax benefits on these deposits are among the largest available to a self-employed person, and most of them vanish if the money lands after 31 December.
This page covers how much is required, how much is recognized, and how a pension fund differs from a study fund in what it gives back.
The pension requirement
It applies to a self-employed person aged 21 up to retirement age, more than six months after their file was opened. The rate is measured against taxable income, in two steps.
Anyone at retirement age is exempt, as is anyone under 21 or anyone who opened their file recently. Failing to contribute carries a fine collected through the fines collection centre, but the real cost is usually the unused tax benefit.
There is a second side that gets less attention: part of a self-employed person's pension savings can be withdrawn during unemployment, under set conditions. It exists to give the self-employed a safety net they do not get through unemployment benefit.
The benefit on a pension deposit
This is where the actual money is, and it splits in two.
11% of qualifying income is recognized as a deduction. It lowers taxable income, saving tax at your marginal rate, and it also lowers the National Insurance base. The annual cap on this part is ILS 25,608.
A further 5.5% earns a credit worth 35% of the amount deposited. A credit reduces the tax itself rather than the income: on a deposit of ILS 12,804, the cap for this part, that is roughly ILS 4,481 less tax.
Both parts share the same qualifying income ceiling, ILS 232,800 a year. Income above it earns no further benefit.
The study fund, which has no equivalent
A study fund is not mandatory, and it is still the best-value instrument open to a self-employed person, for two reasons.
First, the deposit is a deductible expense up to 4.5% of income, within an income ceiling of ILS 293,397, meaning up to ILS 13,202 a year. It is deductible for income tax only, not against National Insurance.
Second, and this is the larger one, growth inside the fund is exempt from capital gains tax. You can deposit beyond the deductible ceiling, up to roughly 7% of that same income ceiling, and while the extra is not deductible, the growth on it is still exempt. In any other investment channel, capital gains tax is charged on withdrawal.
The money becomes liquid six years after the first deposit, or three years for professional training and for someone at retirement age. An early withdrawal forfeits the exemption.
Disability cover
A self-employed person who cannot work has no wage and no unemployment benefit. Disability insurance is the answer to that, and it is recognized for tax too: the premium is deductible up to a set ceiling, separately from the pension benefit.
Two things in the policy are worth checking. Whether the definition of disability is occupational, meaning it refers to your profession rather than any work at all. And whether the sum insured still matches current income, since income that grew without the policy being updated leaves a gap. Plenty of self-employed people discover both details only when they file a claim.
Why December decides
The benefits count by the date the deposit actually landed, not by the year you had in mind. A deposit that reached the fund on 2 January belongs to the following tax year, even if you meant it to close out the previous one.
Anyone depositing by monthly standing order never meets the problem. Anyone making a single year-end deposit needs to confirm the money arrived before 31 December, not merely that the instruction went out. It is one of three tasks that cannot be completed after the fact, alongside the stock count and closing open customer debts, as set out in the year-end document list.
When income changes mid-year
The contribution requirement is measured on annual income, not on what looked right in January. A self-employed person whose income jumped in the final quarter finds out afterwards that the monthly deposit set at the start of the year fell short, and that the recognized ceiling was larger than what they used.
A mid-year check, around September, is worth the time: compare income accrued so far against the annual forecast, then update the monthly deposit or top up with a single deposit before the end of December. Topping up late is possible, but only until 31 December.
Worth checking once a year
Three checks that take fifteen minutes. Whether the actual deposit matches this year's expected income, since higher income raises both the requirement and the recognized ceiling. Whether the annual certificates from the funds arrived, because without them the benefit never reaches the return. And whether the management fees you pay are reasonable, since they eat into the very amount the benefit exists to grow.
A fourth check applies to anyone who is also salaried: contributions your employer makes on your behalf count, and the benefit on the self-employed side is measured on what is left. The detail is in the salaried and self-employed guide.
How Slate helps
Deposits are not an ordinary business expense and are not recorded as one, but they still belong in the year-end picture: income summaries and expense totals show what the business actually earned, and that figure drives both the contribution requirement and the recognized ceiling. The annual certificates from the funds go straight into the file sent to your accountant.
This is general information, not tax or pension advice. The figures are updated yearly, and are worth confirming with an accountant or pension adviser before depositing.
Common questions
Is pension contribution mandatory for the self-employed?
Yes. Since 2017 a self-employed person aged 21 to retirement age, whose file has been open more than six months, must contribute. The rate is 4.45% on income up to half the average wage and 12.55% on the part above it up to the average wage.
How much of a pension deposit is recognized for tax?
Up to 16.5% of qualifying income: 11% as a deduction that lowers taxable income, plus 5.5% as a credit worth 35% of the amount deposited. Both are capped by a qualifying income ceiling of ILS 232,800 a year.
What is the deductible study-fund ceiling for the self-employed?
The deductible expense is up to 4.5% of income, within an income ceiling of ILS 293,397, meaning up to ILS 13,202 a year. You may deposit beyond that, up to roughly 7% of the same ceiling, and still get tax-free growth, though the extra is not deductible.
When can a study fund be withdrawn tax free?
Six years after the first deposit, or three years for someone at retirement age or for professional training. An early withdrawal forfeits the exemption.
Who is exempt from the pension requirement?
Anyone at retirement age, anyone under 21, and anyone whose file has been open less than six months. Someone already covered by an employer's contributions is measured on the income that is not covered.
What happens if I did not contribute?
The law provides for a fine, collected through the fines collection centre. Beyond the fine, the bigger loss is the tax benefit for that year, since it counts by the date the deposit actually landed.