Press release: For immediate release Date: Wednesday, 27 May 2015 Disposable incomes continues to beat inflation For the fifth month in a row, pensions are increasing faster than take-home salaries. Last month, take-home salaries increased by 5.9%, beating inflation by 1.4% according to the BankservAfrica Disposable Salary Index (BDSI), while the BankservAfrica Private Pension Index (BPPI) indicates that pensioners saw an average increase of 10% on their income
In real terms, after accounting for inflation, the increase is 1.4%, which makes it the eighth consecutive month that disposable salaries beat inflation. With inflation likely to remain below 6% for much of the year, positive, real increases are anticipated for another three to four months.
The number of people earning less than R4000 per month declined by 2.6%. This could partly be due to fewer garnishee orders in operation, as civil debt judgements declined by 8.4% in the last quarter. Less than 42% of disposable salary payments were over R10 000, the lowest since June 2014. The number of employees earning between R4000 and R10 000 also declined, but only by 2% compared to a year ago.
Marked growth was again found in the highest category – those earning between R50 000 and R100 000 – which saw an increase of 21.1%, albeit from a low total number of payments: 49 000 out of 3.185 million or 1.3% of the total.
This means that in the last year the number of accounts in the highest category grew by 21%. Growth in this category has not been less than 20% for the last 12 months measured year-on-year, despite effectively higher tax rates on this group. The indication is that this bracket of earners is still best able to fight off tax increases with even higher salary increases, together with those earning over R25 000, where increases in their numbers are over 15%.
“Essentially, the number of high salary earners is growing rapidly and the number of people at the bottom is declining,” explained Mike Schüssler, Chief Economist at Economists dotcoza. “Although the median disposable salary was under R9 000 for April this year, the gap between the formal sector and others is also increasing rapidly"
New wage settlements and the implementation of other CPI plus agreements will help lift the rate of consumer spend towards the middle of the year. In the meantime, consumer spending will slow but should still be positive.
Oil prices expected to influence inflation negatively
Overall, the last few months have seen exceptional growth for both salaries and pensions going through the South African payment system. But inflation is well below its trend, meaning some of the above-inflation performance is boosted by much lower fuel prices than experienced a year ago. This will not last as the petrol price has already increased sharply – over 14% in the last month.
“Overall, the growth in take-home salaries and pensions last month will support retail sales growth, which is likely to be one of the stronger sectors in the economy this year,” Schüssler added.
We expect real consumer spending to continue to increase at a rate of 2% to 2.5% during the course of the year; at a much stronger rate than the overall economy.
Pensions still beating inflation “Pensioners have benefitted from an average pension increase above the rate of inflation for the past nine months. While the history of pension payments is limited at present, pension payments are likely to set a new record in the length of time that increases have been above inflation,” says Dr Caroline Belrose, Head of Fraud and Data Analytics at BankservAfrica.
“Perhaps pension payments are doing very well after a few good years of high investment returns. It is actually quite unexpected that typical pensions are growing this fast. But there may be some risk as the pension investment mix now probably has a high equity weighting,” explains Schüssler.
Average pensions reached 48.7% of disposable salaries – the highest since BankservAfrica started compiling the data in mid-2012. However, it is expected that the delayed implementation of government wage agreements will lower this percentage over the next two months.
Median pensions increased 11.7%, the third month of over 10% growth, indicating that the average pensioner did much better than this time last year. This could be explained by extra pension payments to Transnet pensioners, as median pensions outstrip the growth of average pensions, average salaries, and median salaries. However, the typical or median pension is only R 3 787 per month.
“While the average pension of the 635 000 pensioners was R5 702 in April 2015, the annual percentage change was a very strong 10%. The BPPI captures more than 80% of the actual pension payments in South Africa at present, which gives us unique insight and knowledge of pensions that are paid into bank accounts. This provides a great starting point for analysing older peoples’ income and lifestyle and is the only one of its kind in South Africa at present. There are not many in the world that we know of either,” 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.