Real-take home pay increased at a snail’s pace in May

BankservAfrica’s latest data shows continued trend of banked pension growth outperforming salaries

Real-take home pay increased slightly for the third consecutive month in May on a year-on-year basis. Although the 0.9% increase was slower than March and April, South Africa’s formal sector workers - paid via the South African payments system and measured by the BankservAfrica Disposable Salary Index (BDSI) – are still slightly better off than in 2016. 

The seasonally adjusted real take-home pay averaged at R13 790 in May 2017, marginally lower than April’s average of  R13 914. With most of the last two years indicating declines in real take-home pay, the overall picture reflects no real salary changes in the formal sector. In nominal terms, the average disposable salary increased by 6.6% on a year-on-year basis. This was slower compared to the 7% year-on-year increase experienced between April 2017 and April 2016. 

The median salary increased by 2.5% in real terms, indicating that banked disposable salaries for the typical formal sector employee performed slightly better than the average salary. The median take-home pay was 73.8% of the average pay. 

However, the BDSI direction in real salaries indicates that the trend of shrinking real salaries has been replaced - at least for now - with slowly increasing real salaries. It is likely that this is the result of 2016’s higher consumer price inflation which influenced the size of the salary increases granted by larger employers such as government. 

Interestingly, personal income tax data for April showed an increase of 8.8%, indicating that personal taxes are increasing faster than total banked salaries which grew by 6.4% in April (note: this total includes those earning R100 000 per month which the BDSI excludes from average and median calculations). The higher increase in personal tax collections has been a trend for some time. This is a result of the national budget revenue, which has not made full allowance for inflationary adjustments when tax brackets are adjusted. This trend is likely to continue for some time and could also be a reason for the slow increase in real terms as tax brackets were only adjusted by 1% while inflation averaged 6.4% in 2016. As salary adjustments are largely based on the inflation rate, much of the increase in nominal salaries are taxed at higher tax rates. This makes it difficult for salaried employees to keep up their lifestyles as the higher tax rate impacts take-home pay. 

Medical insurance - as measured by Statistics South Africa - showed an average increase of 10.3% in May 2017. More often than not, this expense is deducted before a salary is banked. The fact that the average salary increased by 0.9% in May indicates that banked formal sector employees are probably averaging gross salary increases of over 7% before taxes with medical aid deduction reducing take-home pay increases to 6.6% or so.The higher than inflation increases in deductions could hurt other parts of the economy as employees are the driving force behind consumer spending. 

It is highly likely that the disposable salaries’ underperformance will affect consumer confidence and drive sentiment down in the coming months. Retail sales and domestic tourism as well as car sales will remain slow for some time to come.  

South Africa’s private pension payments still growing strong

Despite four years of relatively underperforming inflation on the South African equity market, private pension payments are still growing at a strong pace. Average banked pension at real prices grew by 3.7%, the strongest pace over any annual period since October 2015, according to the BankservAfrica Private Pension Index (BPPI) data for May. 

The average pension paid in real terms was R6 555 in May 2017. 

The typical pension in nominal terms – as measured by BankservAfrica - grew slower by 2.3% on a year-on-year basis. The typical pension paid was R4 561, which is only 69.6% of the average pension. The difference between the median pension and average pension increased markedly over the last six months.

Banked private pensions have been outperforming salaries for almost three years and have climbed from 43% of salaries in January 2013 to 49.1% of salaries in May 2017. 

Since January 2013, the BPPI has added six percent more pensioners onto the system. The value of total nominal pensions has increased by exactly 50% since January 2013. 

The BPPI increased by 12.3% in real terms since January 2013 on an average basis. This is far higher than the BDSI which managed to increase by only 1.7% on the same basis. 

There is a concern that pensioners are drawing down their pensions faster than the rate at which these are growing and this will be felt by current pensioners at a later stage.