I was reminded recently of a funny sketch from Woody Allen’s famous movie, Annie Hall, that goes something like this. Woody’s character has marital problems and the psychoanalyst asks him how often he has marital relations. “Hardly ever,” he replies. “Three times a week”. The scene switches to Woody’s wife, played by Diane Keaton. She is asked the same question and replies: “Constantly… three times a week!” (Which got a big laugh – at least from the females in the audience.)

But of course it’s not just in the bedroom, or on the psychoanalyst’s couch, that the term “adequacy” can have vastly different meanings. The question of what constitutes an adequate income in retirement and how you measure it has long been a contentious issue. Are we talking about living it up in retirement or living on the bread line? And by whose standards do we judge “living it up”? Are we looking to holiday on the French Rivera or to tow the caravan around

Queensland?

And given these different expectations, to what level should the government be prepared to subsidise retirement with tax concessions like tax-free super? These days there are almost as many definitions of retirement income adequacy as there are lifestyle choices in retirement. Conventional wisdom is to talk of “retirement income targets”. This might be 50, 60 or even 75 per cent of one’s gross pre-retirement income, a target calculated on a set percentage of Average Weekly Earnings, or even a multiple of the Age Pension. And what of the Age Pension – is it a safety net or middle class welfare?

What if your income is $30,000 before retirement per annum, as opposed to $150,000 per annum? And what role – if any – do factors such as home ownership, retirement age, dependent children and capital accumulated at retirement age play in the equation? Such questions were uppermost in the minds of the economists and other policy experts who worked with AIST and ISN on our joint submission to the Henry review which, among other things, is looking into the adequacy of retirement incomes.

Following close consultation with superannuation funds as well as employer groups and unions, it was felt there was a pressing need for the Government to adopt an explicit definition of adequacy which should include a floor and a ceiling. By setting such a definition we believe we could better guide policy by emphasising that the first goal of retirement policy should be to ensure all Australian retirees – through the Age Pension and their super and other savings (ie the three “pillars”) – enjoy at least a modest standard of living in retirement.
Importantly, defining adequacy puts a ceiling on government responsibility for retirement incomes. It recognises that while lifestyles beyond a certain adequacy level may be desirable, governments and taxpayers are not obliged to support individuals to achieve them. The AIST/ISN submission calls on the Government to make the super system more equitable for low income households by re-balancing the tax concessions.

The previous government’s ‘Better Super’ reforms have skewed our superannuation system in favour of the well off. Unlike employees on the top marginal tax rate, the contributions tax of 15 per cent is of little or no saving to the estimated 2 million plus Australian workers who pay little or no tax. AIST and ISN have proposed that low income earners receive a tax rebate on the 15 per cent tax on their superannuation contributions, paid into their super account in a similar way to the co-contribution.

Our submission also recognises that inequities exist for many women – who take longer career breaks than men, and often return to work on a part-time or casual basis. Our other proposals include improving the efficiency of the super system through the banning of sales commissions (especially for compulsory superannuation savings); a $1500 ‘super baby bonus; an increase in the base rate of the Age Pension; a review of the $450 monthly income threshold for super contributions and a close look at the generosity of the existing taper rates.

Our submission also recommends that government look closely at the adequacy of the retirement incomes of the self-employed before some of them end up as the new group of older Australians living in poverty in retirement with little or no savings. We have supported an increase in superannuation contributions to 12 per cent but we recognise that more research needs to be done on how such an increase would be funded and how it may impact different income groups.

We also recognise that, if the current inefficiencies in the system are rectified, there would be less of a need to increase superannuation contributions. And let’s face it, now is not necessarily the best time to be asking the Government or Australian households to get behind a lift in contributions.

Australia has a world-class superannuation system but it isn’t perfect. Through the Henry Tax review, the Government has a rare opportunity to revisit the chief objective of the system – that being that ALL Australians – not just the wealthy – get to enjoy their retirement.