The Ministry of Finance is attempting to solve a problem that most of the public is completely unaware of, and which could erode savers' returns over the years. Anyone who wants to save or invest money for the short or medium term currently has to choose between several options, such as an investment provident fund, a savings policy, and a mutual fund. Each of them has different tax rules and different benefits.
The result is that many savers choose to remain with the same track, even if there are better alternatives in the market. The reason is that moving to another fund, provident fund, or policy is generally considered a "tax event" and therefore requires the payment of capital gains tax at the actual time of the transition. Thus, tax considerations often influence decisions more than returns, management fees, or the quality of investment management.
They are now seeking to change this situation through a new reform, centered around the establishment of a "unified investment account." Instead of the tax benefit being tied to a specific type of savings, it will be tied to the saver's investment account. The significance is that it will be possible to move between mutual funds, investment provident funds, and savings policies, and even between different managing entities, without paying tax at every transition. Capital gains tax will be paid only when the money is withdrawn from the account.
The goal is for financial entities to compete for the public through returns, management fees, and service, rather than due to tax advantages.
One of the central benefits in the reform is a cumulative deposit ceiling of up to NIS 200,000 for each Israeli resident, which will qualify for the new tax benefits. The ceiling will be updated annually in accordance with the Consumer Price Index. In addition, it will be possible to open an account for children as well, and each child will have a separate benefit ceiling.
Those who prefer to continue investing in the existing tracks will be able to do so. The reform does not cancel investment provident funds, savings policies, and mutual funds, but rather aligns the tax rules between them, so that the choice will be made according to the return, management fees, and service, and not due to tax considerations.
The exemption from capital gains tax on withdrawing the funds as an annuity from age 60 also remains. The difference is that the benefit will be tied to the investment account and not to a specific type of savings, so that it will be possible to move between different investment tracks without losing it.
According to Ministry of Finance data, 91% of investment provident funds currently include less than NIS 200,000, and therefore most savers are expected to benefit from the new track.
Another change is the option to manage investments independently, and still enjoy the same tax benefits. The estimation is that this move will also increase competition among investment houses, insurance companies, and managing entities, and press them to improve returns, reduce management fees, and improve service.
According to the Ministry of Finance, the reform is not expected to cause a loss of tax revenues beyond the current situation, but rather to change the manner in which tax benefits are distributed among the different types of savings.
For the plan to take effect, it will be necessary to complete a legislative process in the Knesset. Only afterward will Israeli citizens be able to open a unified investment account and enjoy the new tax benefits.