Pensions show ‘remarkable resilience’ in a weaker economy
Dr Caroline Belrose, Head of Knowledge and Risk Services at BankservAfrica.
June’s BankservAfrica data reveals optimistic pensions growth over take-home pay.
Pensions in South Africa are increasing at faster rates than take-home salaries, according to the latest BankservAfrica Disposable Salary Index-BankservAfrica Pension Payment Index (BDSI-BPPI) report for June 2016.
While pension payments are typically of lower value than salaries, the data reveals the ‘remarkable resilience’ of pensions growth over the past year and a half, BankservAfrica said today.
The typical pension increased by 6.4% year on year compared to 5.7% year on year growth in salary payments. “Take-home salaries – paid through the interbank South African payments system – increased by 5.7% year-on-year. This is less than the June inflation rate and therefore reflects a 0.5% real decline,” says Dr Caroline Belrose, Head of Knowledge and Risk Services at BankservAfrica.
The South African Reserve Bank and International Monetary Funds both forecast that the South African economy will struggle to grow this year, and this is likely to weigh heavily on employees.
“June figures show that recent salary increases were generally linked to last year’s inflation rate, which averaged 4.6%, but were not high enough to compensate for the increased levels of inflation we are now seeing. This trend has become evident since December 2015,” says Mike Schüssler, Chief Economist at Economists dotcoza.
Average pension banked ahead of salaries
Since January 2013, when the BPPI began, the cumulative increase in pensions has been 30.3%, compared to the cumulative inflation increase of 21.7%. Over the past 18 months, BankservAfrica data has shown that the average pension banked has improved at a faster rate than pocketed salaries.
“Take-home salaries grew at a rate slower than the inflation rate as effective tax increases along with above inflation medical insurance nullified gross salary increases. This slowed cumulative average take-home pay growth to only 17.3%,” explains Schüssler.
“Pensions paid into retirees’ bank accounts increased by 8.7% over the year to June 2016 which, in all likelihood, reflects the effects of the weaker Rand on pension fund increases where maximum amounts have been allocated to foreign funds.” adds Schüssler.
Pensioners, when compared to salary earners, only clear on average an income that equates to 47% of the money salaried workers get. However the latest figure is an improvement, up from the 42.6% in June 2012. The average banked salary in June this year was R13 266, while the average pension paid into a South African bank account was R6 351.
The typical (or median) pension and salary reflect similar trends. Over the last year, the typical salary increased to R9 831, which was just a 3.8% increase on June 2015. The typical pensions increased by 13.5% – nearly four times the rate of the typical salary increase. The typical pension was however just R4 383 in June.
The typical salary pocketed by employees increased by 19.7% over the three and a half year period from January 2013 to June 2016. Over the same period, the typical pensioner saw a 38.6% increase in the pensions paid into their bank account.
“The retirement fund industry has delivered reasonable returns for pensions. This growth has been assisted by the lower starting value of pensions and higher tax threshold levels, meaning that pensions have avoided the negative influence of tax bracket creep,” says Schüssler.
According to Schüssler, pensions have seen remarkable resilience in past 18 months. He says that this shows at least one ‘good news’ story on personal income in South Africa at present. As BankservAfrica’s BPPI data shows, pension increases remain healthy and increases likely play an important role in the economy, particularly in sectors such as retail and healthcare.
