![Australia should aim higher when it comes to expectations about income in retirement, Unisuper says.](/content/dam/images/g/r/3/e/n/5/image.related.afrArticleLead.620x350.gtn78j.png/1483947929549.jpg)
Richer retirees would be better served by a superannuation system that pegged expectations for post-work income to a proportion of final salary, a parliamentary inquiry has been told.
Although Australia's compulsory super system is 21, its objective has never been written into law. The task sounds cursory, but the objective will lay down a legislative claim on taxpayer-funded support for saving via tax breaks for super.
The Turnbull government proposes the objective be to "provide income in retirement to substitute or supplement the age pension".
But for many in the industry, that sets the bar far too low.
"We strongly believe that the concept of income replacement rates needs to be brought to the fore in these discussions," UniSuper says in a submission to the Senate standing committee on economics.
Targets could range from 100 per cent replacement for lower income earners to 85 per cent for retirees drawing on super and a part pension, and between 60 and 80 per cent for entirely self-funded retirees, UniSuper says.
"This approach is likely to be a better measure for middle to higher-income earners to ensure that their standard of living in retirement is roughly equivalent to the standard enjoyed during their working lives," the submission says.
A range of super industry groups has made similar arguments.
The Financial Services Council, which represents for-profit super funds owned by financial institutions including banks, is advancing a long-held position that the objective should recognise a direct link with an individual's pre-retirement income.
"This will ensure the system also retains a meaningful connection to wages growth and provides for an adequate income, rather than simply act as a safety net," the FSC's submission says.
"The FSC defines adequate as 65 per cent of an individual's pre-retirement income, including the age pension, up to twice average weekly ordinary time earnings."
An income of twice average earnings would be $98,000 a year.
The Association of Australian Superannuation Funds (ASFA) says the law should refer to the provision of a "comfortable" lifestyle, which it benchmarks for singles at $43,062 a year.
While the objective of super law will influence future policy decisions, the extent of taxpayer support for super saving has already been curbed.
Under Turnbull government changes, the maximum amount of money that can be transferred into a tax-free pension account will be capped at $1.6 million.
As Treasurer Scott Morrison has noted, a $1.6 million balance today provides an income in retirement of four times the single rate of the age pension, which is $76,800.
The Grattan Institute said the government's definition was the right one.
"This rightly implies that the system should limit support for those with enough means that they are unlikely to receive even a part age pension," the Grattan submission says.
It urges the committee to reject suggestions that ASFA's "comfortable standard" be used.
"This standard supports an affluent lifestyle more luxurious than most households experience during their working lives."
Industry Super Australia says the government needs to go back to the drawing board.
"The proposed objective before the committee does not enjoy widespread confidence and support.
"It is the result of a superficial consultation process in which the government has failed to secure the 'broad agreement' recommended by the Financial System Inquiry, and has not responded to the many criticisms contained in the 100 submissions received by Treasury [as part of earlier consultation].
"Regrettably the minister has not engaged with or sought agreement on a proposed objective that enjoys broad industry and stakeholder support."