Israeli Finance Ministry Proposes Ending Pension Capital Gains Tax Exemption for Over-60s

The Israeli Finance Ministry's arbitration committee, established about two and a half years ago, is set to officially release its recommendations tomorrow, including a proposal to eliminate the current capital gains tax exemption for pensioners aged 60 and above. Currently, individuals over 60 can choose between a tax-free lifelong pension withdrawal or a one-time capital withdrawal taxed at a reduced 15% rate on profits. The committee suggests narrowing this broad exemption on capital gains tax for pension funds when withdrawing as a pension after age 60, aiming to reduce tax disparities between different investment channels. This means pensioners who previously enjoyed tax-free pensions would now have to pay taxes on part of their pension income.

Another key recommendation, expected to be adopted soon by Finance Minister Bezalel Smotrich, is to unify tax and management conditions across all investment instruments by instituting a uniform 25% tax rate on capital gains. Currently, different savings vehicles have separate tax rules, complicating comparison and competition. The proposed 25% tax on real gains, already applied to most short- and medium-term savings like mutual funds and savings policies, would become mandatory market-wide.

To simplify tracking for investors, the committee proposes creating a centralized "investment account" consolidating all policies, provident funds, and savings plans under one roof. This account would allow investors to transfer funds freely between tracks and management companies without triggering taxable events, up to a legal limit. This measure aims to prevent tax penalties on transfers and significantly boost competition against banks and investment houses.

Additionally, the report recommends raising the annual investment ceiling in provident funds, currently about 83,000 shekels, to a much higher amount to be finalized through legislation. The committee was chaired by former Finance Ministry directors Shlomi Heisler and Ilan Rom and included representatives from the Finance Ministry, Tax Authority, Securities Authority, and Capital Market Authority.