It is with special pleasure and gratification that the Institute for Advanced Strategic and Political Studies announces the publication of Policy Studies No. 25, "Israel's Pension fund Crisis." The author of this timely study, Yishai Ashlag, has held a Koret Fellowship for two years with the IASPS Knesset Intern Program. His paper is the first of a series of papers to be published that was written by an Institute Intern during the course of his work as an economics research assistant to a Member of the Knesset. For the past two years, Yishai Ashlag provided economic research to several members of the Knesset. Next year, he will be working on several research projects for Rafael Eitan, the new minister of agriculture, as well as completing his doctoral degree.

To the study. Israel's pension funds are in crisis. They are broke, plain and simple. They stay afloat on the basis of massive taxpayers' subsidies. But the system is a gigantic Ponzi Scheme and will be unable to meet its pension liabilities unless future benefits are substantially reduced, or Israel's overtaxed citizens are further burdened with still higher taxes.

Ashlag sets forth the historical underpinnings of the crisis and shows how and why the recent reforms, proposed by the Fogel Commission, fail to resolve the impending crisis. Ashlag lays out the basics of real reform: (1) put pension payments on a sound footing by linking entitlements to individual contributions plus accrued earnings; (2) end the practice of offering subsidized bonds to the Histadrut pension funds; and (3) reduce government spending and replace the current income tax with a consumption tax to encourage personal saving.

If you are planning to move to Israel to retire, or if you now live there and plan to retire, you had better be sure to have a kitty of your own. Otherwise, as you plan to collect your first pension payment, your bank just might send you a notice reading: Sorry. Out of Funds.