Africa’s largest automated payments clearing house, BankservAfrica, today launched its BankservAfrica Private Pension Index (BPPI), the first private pension data series in South Africa and one of the few available in the world today. The index provides an income gauge of monthly private pension payments paid into bank accounts of those 60 years of age and over – the fastest growing age group in the country. Although the majority of people over 60 years of age receive government grants, it can be concluded that by value the largest amount of income in this group would be from private pensions.
“Despite having the sixth highest pension assets to GDP ratio in the world in 2012, very little is currently known about how much South African private pensioners get paid in monthly income,” says Dr Caroline Belrose, Head of Fraud and Data Analytics at BankservAfrica.
Pensioners struggling to make ends meet
There were a total of 621 523 pension payments in December 2014, slightly fewer than in November and October. The latest BPPI for December 2014 stands at R5 722 on average, making this the fourteenth month where the “take-home pension” has been over R5 000 per month. However, the median pension reveals that the typical pensioner only earns R3 559 per month, while 53.3% earn less than R4 000 per month.
The December 2014 average pension payment was 8.7% higher than December 2013, which means that on average pensioners receiving a private pension saw real income growth of 2.8% for the year to December 2014. For the year as a whole, the average increase in the BPPI was 8% - nearly 2% higher than the average consumer inflation for 2014. Almost every month in 2014 saw pension payments rise above the inflation rate, with the exception of February 2014.
According to Mike Schüssler, Chief Economist at Economists.co.za, this is most likely the result of a fast-rising equity market which rose 17.8% over the year of 2014 (average until 31 December 2014) compared to the year of 2013.
As pension funds are heavily invested in the stock market, low interest rates have probably tempted pensioners to put more of their pensions into equities over the last few years. This means they are now reaping some rewards for this more aggressive investment strategy,” he adds.
One noteworthy trend in the BankservAfrica private pension averages is that they seem to peak in the fourth quarter. Although there is no clear explanation, this could be due to some extra form of pay-out ahead of the Christmas season. Data from previous years also reveals some form of fourth quarter pickup in actual amounts paid out.
It is important to note that the average pension for 2014 is less than 45% of the average BankservAfrica disposable salary index (BDSI). It is quite clear that despite fast increases in pensions, both the percentage increases in pensions and their actual level lags behind figures for disposable salaries from the formal sector. More than 85% of all pensions are below R10 000, which is less than the average disposable salary also measured by BankservAfrica using similar methodology. On average, formal sector workers are therefore seeing a major decline in income when they retire if they are solely reliant on a private pension. This is a sign that retirement savings are not enough for the majority of pensioners.
While the average pension has kept up with inflation, the median or typical pensioner had a nominal increase of just 2% over the last year, with many pension payments seemingly stagnant. This means that pension payment growth for those at the upper end is much better than for the typical pensioner or person in the middle. So while the average pension number is important and could help explain certain retail sales as well as give an idea of overall direction, the fact remains that the average figures hides some important detail on the lifestyle of the typical pensioners as they earn less than the average figure.
Herein lies the problem that many pensioners face - how much of your pension must you use and how far must you cut back on your lifestyle in order to make ends meet on pension?
If the median pensioner can get access to government old age grants it would increase their income by 38%, which by any standards is a meaningful amount. Nevertheless, the grim reality is that most pensioners are in a struggle to maintain their lifestyles, and most will struggle to make ends meet unless they access some form of an old age grant.
For more information contact Wendy Fourie: WendyF@bankservafrica.com or (011) 497 4119.
Notes to the editor:
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 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.co.za is an economic consultancy that helped develop the BPPI.