If you have ever asked yourself/a friend/a relevant Facebook group any of :
“How can I start a monthly savings plan for myself and/or my children?”
“I’ve got some Shekel just sitting in the bank doing nothing – what should I do with it?”
“I joined the workforce late – how can I boost my pension over what I am getting from my job?”
Then you may well find this piece useful.
An admission before we get in to it – and that is that the main point of this article is to talk about two particular types of Israeli investment vehicles that we Olim are largely unfamiliar with, but which actually make a lot of sense for many of us, namely:
(i) Kupat Gemel Lehashkaa
(ii) Financial Policies offered by Insurance and Fund Management companies.
What are They and What are their Advantages?
In a nutshell, both of these vehicles allow you to have your money invested in a fund that is managed by the company you choose, for a relatively low fee (around 0.75% for KG Lehashkaa and 1% for Financial Policies).
Both allow you to make regular monthly and one-off deposits, and to withdraw the money whenever you want, whilst giving you the wonderful gift of tax-deferral (i.e. only paying tax on gains when you make a withdrawal from the fund).
With so many Olim, and even Israelis, not having the time and/or knowledge to manage their own investment portfolio, nor having a big enough bank balance for personal investment managers or Private Bankers to look after them (hence the amounts in the article's title), we have found these vehicles to be extremely useful solutions in many cases.
Unfortunately, neither of these are appropriate for American citizens due to PFIC regulations, so if you are one of Uncle Sam’s subjects, I am afraid it is a case of ‘read it and weep’. Sorry guys.
Some of the other advantages common to both are:
- Low fees for managed investments
- Exposure to non-tradeable assets (which things like mutual funds cannot invest in)
- Easy ability to track and compare returns and underlying asset classes on the internet (www.mygemelnet.co.il and https://supermarker.themarker.com)
- Various investment tracks to choose from to suit your risk appetite (such as “Equities”, “General (i.e. mix of equities, bonds and cash)”, “Short Term Bonds”, etc)
The Kupat Gemel Lehashkaa currently has an annual deposit limit of 70,000 Shekel per person, including children (once they get the white hospital bracelet with a number they are eligible). So, for example, a family of 4 can put away up to 280,000 Shekel per year and have it grow tax free. This can accumulate to significant amounts of funds that are growing tax-free.
Even leaving aside the maximum amounts, you can set up a fund for each of your children (like the Child Savings Account introduced by the government last year) and save small amounts every month, whilst adding one-off larger amounts as and when (e.g. birthday presents, cheques received for Bar/Bat-Mitzvahs).
Financial Policies have no maximum amount that can be deposited.
Returns from many of the companies have been good in recent years, although past performance is no guarantee of future performance. You can check out and see how each company and each track has performed on the above two websites.
Furthermore, you can change investment tracks within the wrapper, although you can’t currently change companies without incurring tax on any gains, although you can of course open new funds with as many companies as you want.
The Cherry On Top
A main feature of the Kupat Gemel Lehashkaa is that if you leave the funds inside until you reach retirement then you can essentially turn these funds, tax-free, in to a monthly pension. This can be a great way to boost your pension pot if you were late, or even lax, in starting one.
This feature does not exist with a Financial Policy, and if you wanted to use these monies to buy a pension income when you retire, you will pay 25% tax on the amount you have gained in the fund when you withdraw the money to buy this pension income.
Of course there is no one-size-fits-all when it comes to savings and investment, and other options for saving and investments in Israel include:
- Bank savings plans (BUT very low interest)
- Buying stocks and shares directly through a bank or low-cost platform (BUT need to manage it yourself, and tax is payable immediately on the gain when you sell within your portfolio)
- Buying Mutual Funds (BUT can have higher management fees, especially on equity funds, and tax is payable immediately on the gain when you sell within your portfolio)
- A regular managed portfolio (BUT fees may be higher, especially in comparison to KG Lehashkaa, and tax is payable immediately on the gain when you sell within your portfolio)
For some people, these disadvantages might be irrelevant and one of these ‘traditional’ alternatives more suitable, however having spoken to and advised many Olim on their finances and investments, we believe that for many of them a Kupat Gemele Lehashkaa or Financial Policy provide a great solution for what they are looking for.
Contact us here if you want to learn more about these vehicles, or would like us to advise on starting one of these for you.