Disposable incomes continue to beat inflation

Dr Caroline Belrose, Head of Fraud and Data Analytics at BankservAfrica.

For the fifth month in a row, pensions are increasing faster than take-home salaries. Last month, take-home salaries increased by 5.9%, beating inflation by 1.4% according to the BankservAfrica Disposable Salary Index (BDSI), while the BankservAfrica Private Pension Index (BPPI) indicates that pensioners saw an average increase of 10% on their income.

In real terms, after accounting for inflation, the increase is 1.4%, which makes it the eighth consecutive month that disposable salaries beat inflation. With inflation likely to remain below 6% for much of the year, positive, real increases are anticipated for another three to four months.

The number of people earning less than R4000 per month declined by 2.6%. This could partly be due to fewer garnishee orders in operation, as civil debt judgements declined by 8.4% in the last quarter. Less than 42% of disposable salary payments were over R10 000, the lowest since June 2014. The number of employees earning between R4000 and R10 000 also declined, but only by 2% compared to a year ago.

Marked growth was again found in the highest category – those earning between R50 000 and R100 000 – which saw an increase of 21.1%, albeit from a low total number of payments: 49 000 out of 3.185 million or 1.3% of the total.

This means that in the last year the number of accounts in the highest category grew by 21%. Growth in this category has not been less than 20% for the last 12 months measured year-on-year, despite effectively higher tax rates on this group. The indication is that this bracket of earners is still best able to fight off tax increases with even higher salary increases, together with those earning over R25 000, where increases in their numbers are over 15%.

“Essentially, the number of high salary earners is growing rapidly and the number of people at the bottom is declining,” explained Mike Schüssler, Chief Economist at Economists dotcoza. “Although the median disposable salary was under R9 000 for April this year, the gap between the formal sector and others is also increasing rapidly.”

New wage settlements and the implementation of other CPI plus agreements will help lift the rate of consumer spend towards the middle of the year. In the meantime, consumer spending will slow but should still be positive.

Oil prices expected to influence inflation negatively

Overall, the last few months have seen exceptional growth for both salaries and pensions going through the South African payment system. But inflation is well below its trend, meaning some of the above-inflation performance is boosted by much lower fuel prices than experienced a year ago. This will not last as the petrol price has already increased sharply – over 14% in the last month.

“Overall, the growth in take-home salaries and pensions last month will support retail sales growth, which is likely to be one of the stronger sectors in the economy this year,” Schüssler added.

We expect real consumer spending to continue to increase at a rate of 2% to 2.5% during the course of the year; at a much stronger rate than the overall economy.

Pensions still beating inflation

“Pensioners have benefitted from an average pension increase above the rate of inflation for the past nine months. While the history of pension payments is limited at present, pension payments are likely to set a new record in the length of time that increases have been above inflation,” says Dr Caroline Belrose, Head of Fraud and Data Analytics at BankservAfrica.

“Perhaps pension payments are doing very well after a few good years of high investment returns. It is actually quite unexpected that typical pensions are growing this fast. But there may be some risk as the pension investment mix now probably has a high equity weighting,” explains Schüssler.

Average pensions reached 48.7% of disposable salaries – the highest since BankservAfrica started compiling the data in mid-2012. However, it is expected that the delayed implementation of government wage agreements will lower this percentage over the next two months.

Median pensions increased 11.7%, the third month of over 10% growth, indicating that the average pensioner did much better than this time last year. This could be explained by extra pension payments to Transnet pensioners, as median pensions outstrip the growth of average pensions, average salaries, and median salaries. However, the typical or median pension is only R 3 787 per month.

“While the average pension of the 635 000 pensioners was R5 702 in April 2015, the annual percentage change was a very strong 10%. The BPPI captures more than 80% of the actual pension payments in South Africa at present, which gives us unique insight and knowledge of pensions that are paid into bank accounts. This provides a great starting point for analysing older peoples’ income and lifestyle and is the only one of its kind in South Africa at present. There are not many in the world that we know of either,” concludes Belrose.