The effect of the trends on the replacement ratio: In view of the trends I have so far presented, a most interesting question arises: What will happen to the level of pension payments at retirement? The variable that we customarily look at in this context is the replacement rate – what will the retiree’s income be, compared to his pre-retirement wage?
A simulation of the net replacement rates, including defined contribution pensions and old-age pensions, provides an illustration of income at NIS 7500 a month. If we look at women who retire at age 62, whose pension savings generate an average real yield of 4 percent per year, and who save 17.5 percent of their salaries, the replacement rate will be 71 percent.