Take-home pay declines for eight months in a row

Dr Caroline Belrose, head of information services at BankservAfrica.

Pensions reflect annual declines for the second consecutive month.

For the first time since the BankservAfrica Disposable Salary Index (BDSI) began in 2013, the average real disposable salaries declined for eight consecutive months in a row on a year-on-year basis, according to the latest January 2017 data.

Employees’ take-home pay remains under pressure due to reasons such as the tax bracket increments, low salary increases and medical insurance costs. All of these combined have left employees with less to take home.

However, the total salaries did not decrease in real terms. There were 177,000 additional small paychecks, mostly for part-time and weekly paid temps. The estimated number of individual people paid via these paychecks was about 43,000, which helped to lift total overall payments, resulting in no real change over the last year.

In nominal terms, average salaries increased by 3.9% - below the actual cost of living increase. The average nominal disposable salary, according to the BDSI was R13,752 for January 2017.

However, salary declines in real terms of 2.6% represented the biggest fall over the last year.

It is unlikely that consumer sentiment will recover soon with real salaries declining at this speed and for this length of time. Real retail sales will remain under pressure and consumers will think twice before taking on any new debt or making any durable purchase.

It should be noted that after disposable salaries reached a high in October 2015 in real terms, there was a slight increase in the number of people on the South African payment system. Some of the growth experienced in real payments can be attributed to more individuals being on the electronic payment system and the small (part-time) employment growth. Another factor could be that companies are employing people on a ‘wait-and-see’ basis as the weak economy creates uncertainty for employment decisions. This is supported by Stats SA’s Labour Force Survey, which has shown an increase in the percentage of people working less than 30 hours.

Nonetheless, the average take-home salary is constrained as observed in the retail, domestic tourism and vehicle sales, as well as for telecommunication services. All of these sectors combined reflect slower consumer spending.

The domestic economy has been slow and household expenditure growth on average is 1.2% while household debt has been declining in real terms for 36 months.

Clearly the heady days of 2011 and 2012 are now over and the ‘new normal’ seems to be for very low single digit growth in disposable salaries.

Graph 1: After inflation changes in take-home salaries and bankable pensions

Source: BankservAfrica and Economistscoza

Graph 2: Real actual banked salaries and private pensions

Source: BankservAfrica and Economistscoza

Private pensions are also under pressure

BankservAfrica Private Pensions Index (BPPI) also reflected a second consecutive month of annual declines in real terms. This may be due to the flattish equity market and the strengthened rand that has resulted in foreign investment income being lower than before in real local currency terms. Pension funds, which are able to place 25% of investments in foreign markets as well as so-called rand hedge stocks, may be affecting current pension payments.

It must be noted that there are 4.3% more private pensioners on the system according to the BPPI. The growth in the number of pensioners is not only a South African phenomena, but also a worldwide one. Over the last three months, the average growth in pensioners has averaged 5.5% on a year-on-year basis.

The BPPI shows a decline of 1.1% which is the biggest real decline for pensioners since the BankservAfrica data began just over four years ago. However, aggregate pension payments increased in real terms by 6.5% for the last three months on a year-on-year basis.

In nominal terms, the average private pension increased by 5.4%. For the 26th consecutive month, private pensions paid into bank accounts has increased faster than salaries. Although pension income growth has slowed, pensions are still outperforming salaries. Total private pensions paid have moved from 9.1% of the total to 9.7% between January 2016 to January 2017.

Pensions again helped to lift the total income from salaries and private pensions by 1.7% for the three months to January 2017 compared to the same period in January 2016. While this increase is minor, it is better than the last few months and may represent a small recovery for the average individual.

Table of disposable salaries and private pensions