Take-home pay continues to increase, but pension increases are slowing, with retirees facing below-inflation increases, because investment returns are sluggish.
The latest BankservAfrica Private Pension Index (BPPI) shows that the average nominal year-on-year increase in “private” pensions was 7.8 percent in February – to R5 992 a month – compared with 9.1 percent in February 2015. Private pensions exclude the social old-age grant.
By comparison, the latest BankservAfrica Disposable Salary Index (BDSI) shows that take-home pay increased in February to the highest level since February last year. Take-home pay rose by 9.1 percent year-on-year, maintaining its upward trend of the past four months.
Take-home pay is what employees receive after tax and retirement fund and medical scheme contributions.
BankservAfrica facilitates payments to the country’s banks. Economic consultancy Economists.co.za helped to develop the BPPI.
Mike Schüssler, the chief economist at Economists.co.za, says the index is based on pensions paid into about 630 000 bank accounts. It is estimated that 870 000 people receive private pensions.
The lower increase in pensions compared with take-home pay in February followed nine consecutive months in which, on average, pension increases were higher than salary increases.
Schüssler says it is unlikely that pension increases will continue to beat inflation, because equity market returns are barely out-performing inflation and interest rates are just above inflation. “This means that private sector pensions are unlikely to have high pension increases, as they are a function of total returns and drawdowns [your monthly pension as a percentage of your retirement capital].”
The data shows that the average pension drops from the end of the year to the early months of the following year. This is because many pensioners receive a year-end bonus, usually in November, that falls out of the index calculation from January, Schüssler says .
The index shows that the average pension is equal to about 45 percent of the average take-home pay. This, Schüssler says, is a clear indication that pensioners are in dire straits. “Getting older is difficult and in most cases means getting poorer.”
He says the fastest-growing age group in South Africa is people aged over 65, and it is growing at 3.2 percent a year, compared with overall population growth of 1.7 percent.
Schüssler says that, “while we do not have data before mid-2012, it does seems as if JSE performance, including dividends, from a year ago, when market volatility increased meaningfully, plays a meaningful role in pension payouts”.
He says the increase in take-home pay in February “is quite surprising, as one would have expected salary increases to be slowing in these tough economic times.
“Usually, we would see January, February and March disposable salaries drop, as year-end bonuses no longer form part of the equation. However, despite taking this into account, the average disposable income was still well above the rate of inflation.”
Dr Caroline Belrose, the head of fraud and data analytics at BankservAfrica, says: “Even after inflation is taken into account, there was a two-percent real increase in take-home pay. This was the fourth month in a row that the increase in disposable income was higher than the inflation rate.”
Only 17.3 percent of employees included in the index receive less than R4 000 a month – the lowest income category – down from 20.1 percent in February last year, because people have moved into higher categories.
The largest income category in the BDSI includes employees who receive between R10 000 and R25 000 a month. These employees currently account for 37.7 percent of the index, up from 35 percent in February 2015, Belrose says.