Disposable salaries squeezed by public sector negotiations delays
As the salary negotiations for public servants were not settled in May due to on-going bargaining, the average disposable salaries in the BankservAfrica Disposable Salary Index (BDSI) saw a year-on-year decline in real terms. May 2014 reflected the backdated increase of the April 2014 annual government salary increases, so this also skews a year-on-year comparison.
“This means that the country’s biggest employer is making a comparison between May 2014 and May 2015 very difficult. The May 2014 numbers reflect two months of salary increases rolled into one, while May 2015 does not yet show an increase as salary talks had not finalised,” explains Mike Schüssler, Chief Economist at Economists dotcoza.
Public servants make up nearly a quarter of the total workforce (and around a third of the estimated number of employees in the BDSI) and receive nearly 30% of the non-farm payroll wages. “In the salary payments systems, we believe this could be as much as 40% of the value of salary payments. So any delay in public sector wage increases has a huge knock-on effect, not only on the BDSI but also on retail sales and many other consumer indicators,” says Dr Caroline Belrose, Head of Fraud and Data Analytics at BankservAfrica.
This delay resulted in a real year-on-year decline of -1.4% in salaries while the nominal increase was 3.1%. However, on a monthly basis, salaries still grew strongly as the April holiday season came to an end. The actual median take-home pay in May was R9 333. This saw a real decline of -0.3%, and increased below the rate of consumer inflation.
“Disposable salary increases were therefore disappointing due to the drawn-out bargaining in the public sector, which is nothing more than a technical factor. However, it is making monthly comparisons difficult on a year ago basis and the weak numbers should be taken with a pinch of salt,” says Schüssler. “In the short-term there may be a lack of household spending too, as people wait to see what their actual increase is going to be, and when it will take place. We can also expect to see a sharp spike in salaries in the months ahead but this will of course be due to the delayed settlement and the adjustments this causes.”
Another factor that is decreasing average disposable salaries is the tax increases that many higher salary-earners are now paying, which also constrains overall consumer spending. We estimate that this has taken close to 1% away from the real salary increase.
Nevertheless, salaries are still increasing in nominal terms, and BankservAfrica expect that when the full year’s salaries are reviewed the actual real disposable salary will be positive. Less than 20% of employees now earn less than R4 000 per month, meaning over 80% of formally employed people on the South African payment system now take home over R4 000 a month.
Pensioners are still getting above-inflation increases
“Although average pensions are only 46.6% of the average salary, the increase over the last year has been nearly 10%”, says Belrose. “In real terms, pensions are up by 5.1%, which is certainly good news for many a person on pension, and means that both average and median pension payments have outperformed inflation.”
Pension growth appears to be largely driven by reasonable returns from fund managers. Another factor influencing this increase is probably that as workers retire and become new pensioners, their now higher salaries offer a higher pension level when they start receiving a pension,” concludes Belrose.
Contact Wendy Fourie for more information: WendyF@bankservafrica.com or 011 497 4119
. Notes to the editor:
The BDSI data is smoothed on a three month moving average basis and adjusted for both weekly payments and pension payments. The average pension payments are only about 60% of those of people in employ, so the BDSI focuses on the employed and their salary payouts. We therefore adjusted the monthly numbers to take this into account. The average disposable salary is adjusted on a constant basis for these two factors. December is a very high payout month and somewhat distorts monthly averages, but we believe that the year-on-year trends remain intact.
Similar to the BankservAfrica Disposable Salary Index (BDSI), the Private Pension Index is an income gauge of money paid into bank accounts from pension schemes. While we do not know the exact number of people we do know the exact number of beneficiary accounts and this shows that there are about 633 000 monthly payments (for 2014 on average) going through the BankservAfrica system, which have been identified as pension payments.
This number does change slightly from month to month but out of the known universe of 740 000 private pension payments in 2012, it appears that the BankservAfrica payments system captures over 85% of the pension payment accounts. This indicates that the sample size of private pensions is extremely good via the BankservAfrica payment system.
We do not consider payments over R100 000 in size as these would typically be lump sum pay-outs of the amount that people can take out of their pension. These could also be pay-outs of the remaining pension in an account to family of a deceased. This remaining amount can often average well over R350 000 for each payment and as with the BDSI these payments do tend to distort the averages at certain times of the year. For 2014 these exclusions reduced the number of accounts considered from 633 000 to 628 000.
Payment analysis is conducted from the second of each month to the first of the following month inclusive as payment dates can vary when a month ends on a Sunday. A three month moving average is then calculated for trend analysis.
BankservAfrica is a payment-enabling organisation operating between the various South African banks with a very secure messaging environment in place. Economists dotcoza is an economic consultancy that helped develop the BPPI.