Saving for retirement? Israel introduces new benefits for pensions

Amid discussions surrounding budget deficits and the state of Israel's war against Hamas, most people may not have noticed some important announcements regarding pensions.

The Israel Tax Authority has recently introduced several new benefits for anyone saving for retirement. Firstly, the deposit limit for savings, particularly for pensions, has been increased by 3.34%. This means that profits accumulated in 2024 will be exempt from a higher amount of tax compared to previous years, resulting in larger tax-exempt capital gains. 

It's important to note that only profits exceeding the deposit limit are subject to capital gains tax. With the increase in the exemption limit, the tax amount on profits will decrease.

For example, in 2023, the annual deposit limit for pension investments stood at NIS 76,905, while in 2024, the limit has been updated to NIS 79,006. This adjustment allows people to save thousands of shekels each year, with the accumulated profits from these investments being tax exempt in 2024 and subsequent years, assuming positive returns.

Another update relates to pension funds and the minimum withdrawal amount required to access the full savings. The deposit limit for pension savers who meet the conditions for a one-time full withdrawal has been raised. For people aged 60 and up, the required amount to withdraw the entire fund has increased to savings that can sustain a minimum monthly annuity of NIS 5,012, compared to NIS 4,850 in 2023. 

Two benefits are associated with deposits in education funds: The recognition of a non-cancelable portion of the annual deposit as a deductible expense for income tax purposes, and exemption from capital gains tax on profits accumulated in education funds for people who are self-employed.

In 2024, the maximum deposit limit for education funds will increase to NIS 20,520, compared to NIS 19,920 in 2023. These benefits have made education funds highly appealing to the self-employed.

It is worth noting that the Tax Authority has long sought to abolish these benefits but has been unsuccessful thus far. Therefore, it is crucial to stay alert to potential legislative changes in the future.

How has the Israel Tax Authority changed the retirement process?

In addition to these updates, the Tax Authority has implemented a digital revolution in employee retirement processes, eliminating the need to fill out form 161 on paper. Now, form 161 can be completed digitally with signatures from both the employee and the employer.

The new digital platform enables employers to easily report Part A of form 161 online, with the report immediately recorded in the Tax Authority's computer systems. After receiving the report, employees will receive a notification or email from the Tax Authority. They can then access the system, review the data, and receive decisions regarding their retirement amounts from the employer.

Once the process is completed, both the employee and the employer will receive notifications that the relevant approvals are available in the system.

The digitalization of the retirement process streamlines operations for businesses, making it easier, more user-friendly, and faster.

The writer is a founding partner at the Ronen Lantz – Patel Law Firm and a candidate for the presidency of the Israel Bar Association.