The Knesset Finance Committee today approved the Ministry of Finance's new capital saving scheme, an investment provident fund. The investment limit will be NIS 70,000 a year per individual. The Ministry of finance had originally intended a limit of NIS 100,000 per person, while the Israel Securities Authority, which opposes this product, sought to reduce the limit to NIS 50,000.
This is a new saving product that will be an attractive alternative to mutual funds, managed portfolios, and bank deposits. The maximum management fee on this product, which is similar to an insurance company investment policy, will be 1.05% annually on the cumulative amount together with a management fee of 4% on annual deposits in the fund, in line with the maximum on pension provident funds and executive insurance since 2013.
The current management fee structure is problematic and is likely to be changed, since saving programs for individuals carry a 2% management fee on the cumulative sum and no fee on new deposits. Furthermore, investment provident funds will probably be characterized by large one-time deposits and not regular small deposits, and it makes no sense at all to charge someone who deposits NIS 70,000 a fee of 4% on this amount. The new regulations now have to pass second and third readings in the Knesset plenum.
Deposits in the investment provident fund will be made from the saver's after-tax income, and the savings will be subject to capital gains tax only on redemption and not during the life of the program. Savers who keep their money in the investment provident fund until the age at which they are entitled to an old age allowance and choose to withdraw the money by way of a monthly allowance and not a one-time capital payment will be exempt from capital gains tax on their savings.
Published by Globes [online], Israel business news - www.globes-online.com - on May 23, 2016
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