Vanguard proposes tax scheme to address young Aussies’ underinvestment

With property becoming increasingly out of reach for young Australia, Vanguard has proposed a tax-incentivised scheme to help cash-heavy individuals build wealth.

Recent years have seen house prices skyrocket in Australia, particularly in its capital cities, leaving young people unable to access what has traditionally been the bedrock of early investing and wealth creation.  

In order to open the door for young Australians to start building their investment portfolio, Vanguard has proposed a new scheme, MyInvestment, a tax-incentivised investment vehicle modelled on schemes used in the UK, Sweden and Japan.

With Australian households now holding concentrated wealth in relatively high levels of cash savings compared to investments, the firm argued a scheme of this type could help individuals move away for holding excess cash and into “productive investments to build financial resilience and deepen the capital pool in Australia”.

Renae Smith, Vanguard Australia chief of personal investor, said: “We want to start a conversation about a real opportunity to motivate young Australians to move excess cash – which offers limited returns compared to equities – off the sidelines and invest prudently into capital markets.”

While superannuation also tends to make up a large portion of Australians’ wealth, the lack of accessibility is a clear challenge for addressing the needs of pre-retirees. This is where MyInvestment has a role to play, according to the firm, by providing liquidity that allows funds to be accessed as required to meet the needs of investors.

Key features of the proposed solution include a $20,000 annual contribution limit, with investments to be made in listed asset classes such as equities, fixed income, and property, while also being accessible to approved financial institutions that offer suitable investment options.

With the specific goal of targeting young people to start investing, Vanguard said the offering could be gated for those 45 and under, along with capital gains and distributions in this investment vehicle being tax concessional after a 24-month period to deliver greater tax inventive for would-be investors.

The proposed offering, Vanguard said, is designed to provide a “flexible, tax-concessional way to save and invest”. This comes on the back of a national survey by SEC Newgate, on behalf of Vanguard, earlier this year that revealed seven in 10 (72 per cent) Australians support the Federal Government allowing tax-free investment accounts in Australia.

As it stands, the firm said there are currently a number of barriers preventing Australians from investing, such as a preference for cash over financial assets like equities, low financial literacy and consumer confidence and the complexity of products amid a shortage of accessible financial advice.

Smith said: “The financial landscape in Australia is evolving at a rapid pace, and younger Australians have different financial needs than older generations as housing, which has been a traditional mainstay of Australians’ wealth, is increasingly moving out of reach. As young Australians seek effective and secure ways to build wealth beyond the traditional family home, the need to reimagine investment systems has never been more important.