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
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.