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.

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.

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

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

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.  


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