Can an Australian Pension Scholar Help Israel About Growing Old Without Poverty?

Israel has a pension problem hiding in plain sight. The country’s market-income poverty rate among the elderly is the lowest in the developed world — barely half of over-65s fall below the poverty line before government transfers, thanks to high rates of private pension coverage. Yet the welfare state does remarkably little with that advantage. Israel’s National Insurance Institute recorded elderly poverty at 12.8 percent in 2023 — above the OECD average of roughly 15 percent. And when the Taub Center for Social Policy Studies applied the OECD’s own equivalence scale to Israeli data, the figure rose to approximately 20 percent, placing Israel among the worst performers in the developed world. Israel’s public transfer system reduces elderly poverty by only about 59 percent — compared with reductions of 80 percent or more in most Western European economies.

In the language of option pricing — a framework I have applied extensively to geopolitical risk — Israel’s pension system has written a naked put on its own elderly. The state has sold away its obligation to provide a floor under retirement income without purchasing the hedge. When markets fall, when careers are interrupted by reserve duty or conflict, when inflation erodes real balances, the losses pass straight through to the individual.

Into this uncomfortable space steps the work of John Piggott AO, Scientia Professor of Economics at the University of New South Wales and one of the most influential pension economists alive on the planet. Piggott’s career offers Israel not a blueprint to photocopy, but a set of hard-won principles about how nations can — and cannot — design their way out of old-age insecurity.

A career at the intersection of theory and practice

Piggott is not a theorist who publishes from a safe distance. He has advised the Japanese government on pension restructuring, evaluated World Bank pension assistance across Asia, co-chaired the G20’s Think20 Task Force on Aging Populations during Japan’s 2019 presidency, and served as a Commissioner on the US National Academy of Medicine’s International Commission on Healthy Longevity. He sat on Australia’s landmark Henry Tax Review and spent five years on the Ministerial Superannuation Advisory Committee. In 2020, he was made an Officer of the Order of Australia for distinguished service to education, population ageing research, and public finance policy. In 2024, UNSW awarded him its Business School Lifetime Achievement Award for Impact.

What makes his work distinctly relevant to Israel is its focus on the junction where retirement savings meet longevity risk. His research on pooled annuity funds, mandatory annuity design, and the securitisation of longevity risk addresses the central anxiety of any defined-contribution system: what happens when the money runs out before life does? In options terms, Piggott has spent a career designing the protective put that privatised pension systems forgot to buy.

The Israeli pension paradox

Israel’s pension reforms since the mid-1990s dismantled the old defined-benefit architecture and replaced it with a mandatory defined-contribution system. Employers and employees now contribute a combined 18.5 percent of salary to private pension accounts. In practice, this has transferred the full weight of investment risk, longevity risk, and inflation risk onto individual workers — many of whom lack the financial literacy to bear it.

The OECD has documented the consequences. Coverage gaps persist among Israeli Arabs and Haredim, where participation rates sat at just 32 and 48 percent respectively when the OECD last surveyed the breakdown in 2012. Women face a double penalty: the retirement age, currently around 63 and rising to 65 by 2032, still falls well below the male threshold of 67 and the OECD female average, reducing the accumulation period. And public transfers contribute less than 50 percent of elderly income in Israel, compared with 61 percent across the OECD.

The fat-tail risk is what should alarm policymakers most. Career interruptions from military reserve service, geopolitical shocks to the Tel Aviv Stock Exchange, and inflationary spikes — such as the VAT increase to 18 percent in January 2025 — generate the kind of heavy-tailed distributions that erode retirement balances in ways standard actuarial models underestimate. One Israeli study found that 33 percent of employees will retire either poor or near-poor. A Le Chatelier principle operates here: when the pension system is stressed, the adjustment does not restore equilibrium but overshoots — retirees draw down balances faster, re-enter low-wage employment, and lose access to means-tested supplements precisely when they need them most.

What Piggott’s framework offers

Why Piggott, and not any of a dozen OECD pension specialists? Because his research programme, conducted through the ARC Centre of Excellence in Population Ageing Research (CEPAR), addresses the specific market failure at the heart of Israel’s system: the absence of longevity insurance in a mandatory defined-contribution architecture.

On the annuity gap. Piggott’s pioneering work on pooled annuity funds — Group Self-Annuitisation, or GSA — shows how collective risk-sharing can deliver retirement income streams without the capital reserves that make traditional annuities prohibitively expensive. The mechanism, first formalised with Valdez and Detzel in a landmark 2005 Journal of Risk and Insurance paper, works by pooling idiosyncratic longevity risk among members: when a participant dies, their remaining balance is redistributed to survivors, extending the income stream for the living. Crucially, this obviates the need for an insurance company to act as guarantor, eliminating the solvency margins and adverse-selection premiums that price conventional life annuities beyond the reach of low- and middle-balance retirees. Subsequent work by Piggott with Hanewald and Sherris extended the framework to account for systematic mortality risk — the possibility that an entire cohort lives longer than projected — showing how product design can be adapted to absorb even population-wide longevity shocks. Australia’s QSuper Lifetime Pension, launched in 2021, embodies precisely this research tradition. Israel, where most retirees take lump sums or phased withdrawals, is a textbook case for the same innovation. A pooled annuity product designed for the Israeli market could function as a longevity put at a fraction of the cost of a conventional guarantee.

On pension taxation and demographics. Piggott co-edited the MIT Press volume The Taxation of Pensions, examining how tax expenditures on retirement savings interact with equity and adequacy. Israel’s pension tax provisions have been criticised as regressive — the tax-exempt pension ceiling reaches just NIS 5,422 monthly in 2026 against an original target of NIS 6,110, illustrating how fiscal pressures erode even legislated commitments. His T20 Task Force recommendations — urgent tax reform, simple lifetime annuity products, and universal long-term care access — speak directly to an Israel whose elderly population will grow sharply as the post-independence and post-Soviet immigration cohorts age.

Sources: OECD Pensions at a Glance 2023/2025; NII Poverty Report 2023; Taub Center; Brookdale Institute.

Three reforms Israel could begin tomorrow

Piggott’s research points to three reforms requiring no new institution and achievable within a single Knesset session.

First, re-target pension tax breaks toward lower earners. Redirecting even a fraction of current regressive tax expenditures into matching contributions for workers below the median wage — a mechanism Piggott and Holzmann have analysed in detail — would improve adequacy where it is weakest, without increasing fiscal cost.

Second, introduce default drawdown rules nudging retirees toward annuitisation. A regulatory default converting a portion of accumulated balances into a lifetime income stream — with an opt-out — would draw on CEPAR’s behavioural research showing defaults are the single most powerful tool for improving retirement outcomes.

Third, pilot a pooled annuity fund for low-balance accounts. A supervised pilot through one or two of the largest pension funds would test Group Self-Annuitisation in an Israeli context. The Capital Markets, Insurance and Savings Division already has the supervisory architecture; what it lacks is the analytical backing a CEPAR-style research partnership could provide.

Building Israel’s CEPAR

Australia’s own elderly poverty rate, at over 20 percent, is no advertisement for complacency. But the intellectual infrastructure Piggott and CEPAR have built — retirement income adequacy research, longevity modelling, behavioural studies, and sustained policy engagement — represents exactly the evidence-based ecosystem Israel needs.

What would an Israeli CEPAR look like? A research centre at the Hebrew University or the Technion, jointly funded by the Israel Science Foundation and the Ministry of Finance’s Capital Markets Division. Its advisory board would include Bituah Leumi, the Knesset Labour and Welfare Committee, and major pension fund managers. It would produce annual adequacy assessments and design retirement products for Israel’s heterogeneous population — secular, religious, Arab, immigrant. CEPAR took a decade to build. Israel does not have a decade to wait.

The longevity dividend

The deeper lesson in Piggott’s work is that retirement policy cannot be separated from health policy, labour policy, and fiscal policy. The National Academy of Medicine’s commission framed longevity not as a cost to be managed but as a dividend to be captured.

For Israel, a country that has always turned demographic challenges into sources of strength, this framing carries special resonance. When poverty among the elderly persists at rates well above OECD norms in one of the most innovative economies on earth, the failure is not technical. It is moral.

In option-pricing terms, the longevity dividend is a call option on human potential. Its value increases with volatility — with the very demographic and geopolitical uncertainty that Israel faces in abundance. But a call option is worthless if nobody exercises it. Israel has the talent, the data, and the urgency. What it needs now is the will to exercise the option.