Disposable incomes continue to beat inflation

The BankservAfrica Disposable Salary Index (BDSI) and the BankservAfrica Private Pension index (BPPI) are both showing percentage increases that are way above inflation.

The March BDSI is typically the lowest of the year as state, and state-owned salaries are increased from April, while the private sector starts increasing salaries from June onwards. So it is no surprise that the March disposable salary index dropped to R11 738 from R11 971 in February.

However compared to March 2014 - where disposable salaries were R10 919 - the BDSI is 7.5% higher. In real terms, after taking inflation into account, the increase is 3.3% making it the seventh month in a row that disposable salaries have beaten inflation.

“Inflation for March increased by 4% while take-home salary increased by 7.5%. Pensioners saw their average income increase by 9.6% again, faster than take home salaries for the fourth month in a row,” says Dr Caroline Belrose, Head of Fraud and Data Analytics at BankservAfrica. “With inflation likely to remain below 6% for most of the year it is likely that positive, real increases will be the order of the day for a few more months,” says Mike Schüssler, Chief Economist at Economists dotcoza.

However, the higher tax rate may already have started to have an effect as the personal tax year runs from March to February. Therefore the average BDSI could already be slightly lower due to the effective tax increase on higher earners. This may have made March 2015 lower than expected on the average disposable salary numbers.

In March 2015, the number of people in the lowest income category (those earning less than R4 000 per month) in the BankservAfrica Disposable Salary Index declined by 10.9%, and only 42% of disposable salary payments were over R10 000. The number of employees earning between R4 000 and R10 000 also declined but by only 1.7% when compared to a year ago.

The highest growth this month was in the highest category: those earning between R50 000 and R100 000. This category saw an increase of 22.7%, albeit from a very low percentage of the total number of payments. The number of accounts in this category is now close to 50 000 out of 3,179 million or 1.6% of the total. In the last 27 months the number of accounts taking home between R50 000 and R100 000 grew by a least 17%. This is despite effectively higher tax rates on this group of individuals - demonstrating that they are probably still best able to fight off tax increases.

“The same applies to those earning over R25 000 in take-home pay. The BDSI shows that their numbers have increased by over 16%,” says Mike Schüssler, Chief Economist at Economists dotcoza. “This indicates that, although the median disposable salary was under R9 000 for March 2015, the number of wealthy salary earners is growing rapidly and the number of people at the bottom are declining.”

The indication is that the gap between those in formal sector work and others is increasing. The median salary was R8 653 and this was 8.5% higher than March 2014. It is perhaps the one number that remains lower than one would expect. But here too, the usual lower first quarter numbers are probably again at play.

Pensioners can rejoice once again

The good news for pensioners is that they have seen an average pension increase above the rate of inflation for eight months in a row. While the history of pension payments is limited at present, we believe that we capture more than 80% of the actual pension payments in South Africa at present which gives BankservAfrica unique insight and knowledge of pensions that are paid into bank accounts.

It seems that pension payments are likely to set a new record in the length of time that increases have been above inflation.

While the average pension of the 635 000 pensioners was R5 656 in March 2015 the change was a very strong 9.6% on a year ago with the average pension reaching 48.2% of disposable salaries - the highest since BankservAfrica started compiling the data in mid-2012.

More surprising was the fact that the median pension had increased by 11.7% which is the second month of more than 10% growth in the median. This means that the typical pensioner this month did much better than a year ago. It is possible that this index has been influenced by some extra pension payments to Transnet pensioners etc., as median pensions also outstrip the growth of average pensions, and average salaries as well as median salaries.

Perhaps pension payments are doing so well after a few good years of high investment returns – it is quite unexpected that typical pensions are growing this fast.

However the typical or median pension is still only R 3 755 per month and certainly does not make that pensioner wealthy by any stretch of the imagination.

Those much lower oil prices make the picture a little rosier

Overall, the last few months have seen exceptional growth for both take-home income types going through the South African payment system. But again one must be aware that inflation is well below its trend, and that means some of the above inflation performance is boosted by much lower fuel prices on a year ago. This cannot last and eventually the high performances will return to a more normal level. Overall the growth in take-home salaries and pensions will be supportive of retail sales growth which is likely to be one of the stronger sectors in the SA economy yet again.

“We expect real consumer spending to continue to increase above 2.5% and therefore be much stronger than the overall economy,” Schüssler concludes.