Kupat Gemel (provident fund)
3 min read
Kupat Gemel (קופת גמל) is a long-term savings vehicle in Israel. For most people today it is a retirement product: money is paid in during your working years, the fund invests it for decades, and it is paid out when you retire. This guide explains how a provident fund works, what changed in the 2008 reform, the tax rules, and how to compare funds.
What a provident fund is
A provident fund is a savings account managed by an investment house or an insurance company. You and, if you are employed, your employer pay money into it, and the fund invests that money in the markets according to your chosen track. The balance builds up over your working life and is meant to support you after you stop working. It is one of the main pillars of long-term saving in Israel, alongside pension funds and study funds.
The 2008 reform: monthly pension payouts
The way a provident fund pays out changed in 2008. Money paid in from that year on is treated as gemel for annuity: at retirement it is turned into a monthly pension for the rest of your life. Money saved in older funds before the reform can often still be taken as a lump sum under the earlier rules. This is why people speak of old and new provident money, and the difference decides how and when you can reach the savings.
How it is funded
For an employee, contributions are a percentage of the monthly salary, split between the employee and the employer and paid automatically from the payroll. Self-employed people can pay into a provident fund themselves. In both cases the deposits are recognised for tax up to annual ceilings, which is part of what makes the fund attractive as a home for long-term savings.
The tax benefits
Contributions receive tax relief within the legal ceilings, so paying into the fund lowers your taxable income now. The investment gains are not taxed year by year while they stay in the fund, so the money compounds on the full amount instead of on an after-tax figure. Tax is settled at withdrawal, and the treatment depends on whether the money is taken as an annuity or, for eligible old funds, as a lump sum.
Reaching the money
Because a modern provident fund is built for retirement, the natural exit is a monthly annuity from retirement age. Old pre-2008 money may be available as a lump sum once the conditions are met. Taking money out early, outside the rules, usually means a heavy tax charge, so the fund is best treated as money set aside for the long term.
Investment tracks
A provident fund offers several tracks, from equity-heavy to bond-heavy, plus index-tracking and age-based tracks that automatically grow more cautious as you get older. You pick the track that fits your age and your comfort with risk, and you can switch tracks inside the fund without triggering tax, so you can adjust as your situation changes.
Management fees and how to compare
The fund charges a fee on the balance and, in some cases, on deposits, both capped by regulation. Across a saving life of thirty or forty years, even a difference of a few tenths of a percent turns into a large sum, because the fee is taken every year on a growing balance. When you compare funds, look at the net return over long periods, put it next to the fee, and compare funds in the same track. You can do all of this on the site using official data.
General information only, not advice. Sources: official Capital Market Authority data and Kol-Zchut.