Vanguard has proposed the introduction of a short-term MySuper-style investment vehicle to meet the needs of young investors.
Investors would be free to withdraw money out of the structure, dubbed “MyInvestment”, without restriction after 24 months. If they choose to withdraw it earlier, they would be taxed at the marginal rate.
Vanguard will make the recommendation to government in Canberra this week, with Vanguard Australia managing director Daniel Shrimski and other high-level officials discussing the plan in meetings with government and opposition frontbenchers.
The idea was foreshadowed on the Professional Planner Shape of Advice podcast.
“There’s tax incentivisation in super, we think there’s an opportunity for tax incentive [investment vehicles] outside of super,” Shrimski said.
MyInvestment would offer a capital gains tax concessional regime for retail investors with a $20,000 annual contribution cap. After-tax contributions, interest, dividends and capital gains would all be tax-exempt.
The vehicle presents an complementary service to superannuation which is not accessible until 60, decades away for younger generations.
To maintain guardrails and consumer protections, MyInvestment would follow the principals of MySuper by offering a simple investment menu featuring ETFs and managed funds that invest in listed securities, as well as fixed income and listed property and infrastructure.
The aim of the two-year tax-exempt period is to encourage “capital mobilisation” but also to encourage savers to hold investments for longer than any potential sharemarket volatility.
MyInvestment design parameters
Source: Vanguard.
Vanguard has suggested retail investing should be considered the “fourth wealth pillar” outside of housing, cash savings and superannuation, arguing that Australians are overly concentrated in the traditional three pillars.
Furthermore, the growing housing affordability crisis – and growth of housing as the primary form of wealth in Australia – is limiting the ability of younger generations to build wealth. The current environment relies on tax concessions that favour higher income groups that drive capital into less productive assets like housing.
Research from the discussion paper accompanying the policy proposal found that 72 per cent of Australians would support a tax-advantaged retail investment vehicle like the MyInvestment proposal and 58 per cent of 18–34-year-olds said they would use MyInvestment to help them save for a house deposit.
Vanguard believes the vehicle would be a better way for young to save and instead of holding cash, which offers limited returns compared to equities and has its purchasing power eroded by inflation.
Vanguard did a global study across 15 different jurisdictions across the world and found Australians held more cash.
“If you look at financial assets outside property, 23 per cent of financial assets are in cash… you could say Australian’s have missed out a little bit by holding so much in case,” Shrimski told the podcast.
