The pension mistake that could cost you 1.3 million shekels

Most of us, when choosing a pension fund or changing jobs, ask one question: how much management fee am I paying? Employers boast about the arrangements they have achieved, employees compare tenths of a percent, and everyone feels that if the management fee is low, the matter is closed.

But a simulation conducted by Discount Bank presents a different picture: a saver who paid higher management fees may reach retirement with 1.34 million shekels more than a saver who paid no management fees at all, if their fund yielded 1% higher returns each year. Yield is the profit the pension fund earns on your money: if the fund invested the money and it grew by 7% a year, that is the yield. Management fees are the commission the fund charges you for management, and they consist of two parts: a percentage of each monthly deposit entering the fund, and a percentage of the total amount already accumulated in it. When people say 'I achieved 0% management fee', they usually mean the second component, the commission from the accumulation.

The Discount simulation examined two 35-year-old savers with identical starting data: both have 400,000 shekels in the fund and a monthly deposit of 4,100 shekels. The first achieved an excellent deal, 0% management fee from the accumulation, but his fund yields an average annual return of 6%. The second pays 0.25% from the accumulation, but his fund yields 7%. In both cases, both pay 1% management fee from each monthly deposit. At age 67, the second saver, the one who paid management fees, is expected to reach an accumulation of about 8.47 million shekels. The first, who did not pay management fees from the accumulation, will reach about 7.13 million shekels. The gap: 1.34 million shekels.

For illustration purposes only, such a gap in accumulation is worth an addition of about 6,700 shekels to the monthly pension. The actual pension depends on the retirement age, family status, and fund conditions, and therefore may be different. The simulation is not a forecast and not advice, and the yields chosen (6% and 7%) are theoretical averages intended to illustrate the effect of the gap over time. The calculation did not take into account insurance costs, taxation, or changes in deposits.

Why does one percent turn into such a large gap? Because the yield works not only on the monthly deposit, but on all the money already accumulated, and on the profits that the profits themselves have yielded. Over 32 years of saving, this effect, known as compound interest, turns a difference that seems negligible into a huge sum.

The gaps in the market are not theoretical. Is a one percent gap in yield realistic? Pension Net data from the Capital Market Authority shows that the actual gaps are even larger. In the three years ending in May 2026, in the popular track for those 50 and under, the leading body (Mor) achieved a cumulative return of about 62.5%, while the body at the bottom (Harel) achieved about 51.4%. A gap of more than 11 percentage points in just three years. In a five-year window, the picture changes: Phoenix at the top end and Altshuler Shaham at the bottom. In a ten-year window, Phoenix leads and Migdal is at the bottom. The leaders change, and the body that led in one period does not necessarily continue to lead in the next.

Erez Karo, manager of the financial consulting products branch at Discount, emphasizes that there is no direct connection between management fees and yield. 'There is no basis to say that a body that charges higher management fees will achieve a higher yield,' said Karo. Within the same investment track, different savers can pay completely different management fees and receive exactly the same yield.

So why does everyone talk about management fees? Because management fees are a clear number that is easy to see on the pay slip and compare with friends. An employer can announce 'We achieved 0% from the accumulation for you', and the employee gets the feeling that his pension issue is settled. But at the same time, that same saver can be for years in a fund with low performance, or in an investment track that does not suit his age, without knowing about it.

The common claim is that yield is not under the saver's control, while management fees are. Karo accepts the claim in part. 'There is a lot of truth in the claim,' he said. But it does not follow that the saver is completely without influence. He does not control the yield, but he does control the process: he can choose which fund to save in, which investment track, and check from time to time if the decision he made five years ago is still correct today.

Discount Bank's Smart Future platform allows bank customers to see all their pension information in one place. The data collected from the platform provides a glimpse into what savers discover when they check their status. The first finding is not surprising: the main reason customers turn to consulting is management fees. But alongside this, insights arise that the savers themselves did not know about:

1. 35% of customers discovered that they pay higher management fees than is customary in the market.

2. 18% discovered a fear of a lack of insurance coverage in case of death, usually because the definitions in the fund were not updated after marriage or the birth of children.

3. 30% discovered a gap between the monthly pension they want to receive upon retirement and the pension they are expected to actually receive, with the gap being particularly prominent among women: their expected pension is on average about 30% lower than that of men.

4. For 4% of customers, a mismatch was discovered between their age and the risk level in the investment track.

Seemingly a small number, but Karo explains that for them, the insight is critical. 'For a young client, the correction can be worth hundreds of thousands of additional shekels in the pension,' he said. 'For an older client, the warning can prevent a financial disaster and the erasure of a large part of the savings on the eve of retirement following a crisis in the markets.'

Discount checked the same principle at other ages as well, with the same assumptions (monthly deposit of 4,100 shekels, 1% management fee from deposit in both cases): even a saver who starts only at age 45 with a million shekels in the fund sees a gap of 800,000 shekels. But the prominent figure is that of a 25-year-old starting from zero: the gap reaches almost two million shekels, because compound interest has 42 years to work.