Israel's Finance Ministry Proposes Unified Investment Account with Tax Benefits

The Israeli Finance Ministry, led by Director-General, released a report on Wednesday recommending the creation of a dedicated "investment account" that consolidates all savings and investment accounts into one, accompanied by tax incentives. The reform aims to increase competition by improving returns and reducing management fees. Under the proposal, savers would receive a tax exemption on up to 200,000 shekels, with the cap adjusted annually for inflation.

The team, established in February 2024 by Finance Minister Bezalel Smotrich, identified structural market failures caused by inconsistent regulations and tax treatments across three main savings vehicles: savings policies, mutual funds, and provident funds for investment. Currently, tax benefits are tied to specific products, limiting consumer flexibility. The reform would link tax benefits to the unified investment account instead, allowing purchases of provident funds and savings policies both inside and outside the account while maintaining tax neutrality.

Withdrawals as pensions from age 60 would be exempt from capital gains tax. Separate accounts could be opened for children, each with their own contribution limits. The model also enables savers to invest independently and directly benefit from tax advantages without being eroded by institutional management fees. Currently, 91% of provident fund accounts hold less than 200,000 shekels, and tax benefits are only available on withdrawals as pensions after age 60. The reform removes age and usage conditions, allowing tax benefits on all savings instruments within the investment account.

Finance Minister Smotrich stated, "This reform, which directly benefits the public, is part of a series of initiatives we have promoted in recent years. It simplifies saving and investing options and offers a range of tax benefits. After legislation is completed, the public will have access to accessible investment tools enabling every citizen and family to plan their financial future. Thanks to all the teams involved."