Treasury’s long-awaited Retirement Income Review found that most Australians will have enough income at retirement even if the superannuation guarantee is kept at 9.5 per cent of wages.

In fact, the report claimed, if the superannuation guarantee rises from 9.5 per cent of wages to 12 per cent by 2025, workers would give up 2 per cent of their potential incomes while building larger nest eggs than necessary.

But that analysis ignores the plight of many low-income Australians with interrupted careers who would struggle to build an adequate retirement income.

“Those claims [in the Retirement Income Review] are basically saying that the age pension is very generous … The reality is that the age pension is only just sufficient for those mainly relying on it to avoid poverty in retirement,” said Ross Clare, research director with the Association of Superannuation Funds of Australia (ASFA).

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Although compulsory superannuation has helped an increasing proportion of the population achieve an adequate retirement, there is still a long way to go.

Leaving the SG at 9.5 per cent would see many people struggle in retirement, but allowing the rises to go ahead would make a huge difference to half the workforce, Mr Clare said.

“Increasing the SG to 12 per cent, as is currently legislated, will be crucial for getting at least 50 per cent of the population to the ASFA comfortable standard or greater in retirement,” he said.

According to ASFA, a comfortable retirement allows for regular meals out, regular leisure activities, an annual trip in Australia, a reasonable car, and enough money to replace one’s kitchen and bathroom over 20 years.

Meanwhile, a modest or basic retirement involves the odd cheap meal out, budget hair cuts, cask wine, and no money for home modifications or repairs.

The difference between a modest and comfortable retirement is quite substantial because a modest retirement leaves you almost wholly dependent on the age pension.

To secure a modest retirement, which is just a step up from the age pension, couples would need a super balance of $51,400 and singles $36,050, according to ASFA. To step up to a comfortable level, a couple would need $659,000 and a single $561,000.

As the table below shows, a lot of couples in their 50s and 60s are within grasp of a comfortable retirement if you rely on the average figures. But these numbers are distorted by the inclusion of high-income earners, so it’s best to look at the median for a clearer picture.

That shows there are lots of people who are headed for more than a modest retirement but less than a comfortable one.

Allowing people time to bridge the gap in the last decade of work with an SG rise would make retirements far more enjoyable for many.

It would also allow younger people to build significant nest eggs over their working lives.

For another way of looking at where many people find themselves, the chart below demonstrates that many people retire on benefits that are not much more than 70 per cent of their working income, even where they have significant super put aside.

Not everyone agrees that the SG needs to rise, however.

Independent economist Saul Eslake sees people being well provided for under the current arrangements.

“Many people are set to retire on 70 per cent of their pre-retirement incomes and you spend a lot less in retirement than when you are working,” Mr Eslake said.

“If you raise the SG to 12 per cent, you will see people getting a lot more in retirement than when they were working.”

Nicholas Gruen, CEO of Lateral Economics, said super needed a rethink.

“I deplore the way we have confused what super is about by subsidising people in the middle and created a penalty for people at the bottom, [by reducing their incomes],” Dr Gruen said.

“I’d like to see a compulsory super rate of over 12 per cent, but people should be able to withdraw to buy a house and for education.

“It should also be taxed at normal rates, not be a tax benefit.”

Chief advocate for National Seniors Australia Ian Henschke also said superannuation should be used as a savings mechanism for property to be repaid later.

“We are seeing more people retiring without owning a house,” he said.

“Now 76 per cent of those retiring own a home, while 80 per cent of 80-year-olds do.

“By 2056, only 57 per cent of people will retire with a home and not owning a home is the key driver of poverty in retirement.”

Allowing super to be used to help with a home purchase in midlife would help address this, Mr Henschke said.

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