Israeli Finance Minister to Unveil Major Investment and Savings Reform Report

After more than two years of work, Israeli Finance Minister Bezalel Smotrich is set to present the final report of the Arbitration Committee, officially named the "Team to Reduce Gaps in Short- and Medium-Term Savings and Investment Instruments," in a press conference tomorrow. The report's publication is notable due to frequent disagreements among financial regulators such as the Budget Department, Ministry of Finance, Securities Authority, and Bank of Israel, often reflecting power struggles rather than professional diversity.

The committee's main recommendation, introduced in an interim report nearly 18 months ago, is the creation of a unified platform called the "Investment Account." This platform would allow savings through three products: provident funds for investment, savings policies, and securities and mutual funds. The goal is to equalize tax benefits across these products, granting tax advantages to the saver rather than the product, and to consolidate all saver information in one place for better management.

Currently, savers can deposit up to about 83,000 shekels annually into an investment provident fund, which offers two tax benefits: deferral of capital gains tax upon sale and exemption when withdrawing funds as a pension at retirement age. Savings policies allow unlimited deposits but only offer tax deferral when switching investment tracks, while mutual funds have no tax benefits except capital loss offsetting. The Investment Account aims to provide both tax benefits to all products, subject to a lifetime cap.

The Capital Market Authority opposed the plan, arguing it might deter customers and increase investment costs. Despite opposition, the Investment Account is expected to proceed with modifications, including allowing provident funds to be purchased outside the account. Several key questions remain: who will be authorized to market the account (brokers but not major banks, which will be temporarily protected to favor investment houses and smaller banks); the scope of tax benefits (likely shifting from annual deposit limits to a lifetime accumulation cap of a few hundred thousand shekels, potentially impacting middle-class households); which products will be included (likely excluding bank deposits and study funds due to political sensitivity); and how the report will address the role of intermediaries.

There is consensus that meaningful change cannot occur while insurance agents are incentivized by commissions rather than client benefit and cannot market all products. However, agents will still be able to sell provident funds outside the Investment Account, limiting reform impact. The report may call for reforming the intermediary sector, but implementation depends on the next government's willingness to confront the powerful insurance agents' association, which has repeatedly blocked commission structure changes.