The final phase of pension portability reform came into effect today. Investors will now be able to freely switch their retirement savings between life insurance policies with insurance companies, and provident and pension funds. The measure supplements the portability between provident and pension funds, which came into effect in October 2008.
This is one of the most important measures for consumers ever undertaken in the Israeli pension market. Supervisor of Capital Markets, Insurance and Savings Yadin Antebi led the reform.
Investment institutions, especially insurance companies, were tensely awaiting the introduction of the pension portability reform because life insurance policies are considered the most expensive product in the pension market. Policies sold since 2001 are even less attractive than policies sold earlier. A financial market source recently expressed concern over this point. He said that if large amounts of money are transferred under the portability reform, financial institutions will have to increase their liquidity, forcing them to sell assets on the market, which will push down prices on the Tel Aviv Stock Exchange (TASE).
The pension portability reform will allow investors, for the first time, to freely switch their provident and pension funds and savings plans of life insurance policies without paying fines. This means that consumers will be able to change their pension savings. The reform does not apply to members of old pension funds (founded before January 1, 1995).
Pension portability means that transferring a policy will not be considered a taxable event. Provided that the entire amount transferred stays in a pension plan for retirement, no capital gains tax will be paid on profits in the pension savings.
Published by Globes [online], Israel business news - www.globes-online.com - on January 1, 2009
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