Israel's Finance Ministry Proposes Unified Investment Account to Boost Small Savings

Israel's Finance Ministry is introducing a reform aimed at simplifying and enhancing tax benefits for small savers with less than 200,000 shekels in their investment accounts. Currently, savers must choose among investment funds, provident funds, or savings policies, each with different tax rules. Switching between these options triggers capital gains tax events, discouraging movement even when better alternatives exist. The new reform proposes a "unified investment account" where tax benefits are linked to the account itself rather than the investment type. This allows savers to switch freely between mutual funds, provident funds, and savings policies without paying capital gains tax until withdrawal.

The reform sets a cumulative deposit cap of 200,000 shekels per Israeli resident, indexed annually to inflation, with separate caps for accounts opened for children. Existing investment options will remain available, but tax rules will be standardized to encourage competition based on returns, fees, and service quality rather than tax advantages. Capital gains tax exemption on withdrawals as a pension from age 60 will continue under the new system.

According to the Finance Ministry, 91% of provident funds currently hold less than 200,000 shekels, meaning most savers will benefit from the new tax framework. The reform also enables independent investment management while retaining tax benefits, expected to increase competition among investment houses, insurance companies, and fund managers, potentially lowering fees and improving returns. The ministry does not anticipate a loss in tax revenue but expects a redistribution of tax benefits across savings types. The reform requires legislative approval by the Knesset before implementation.