DOMESTIC ECONOMY KEPT ALIVE BY PENSION INCREASES

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Pensions continue to drive the South African economy while the downward trend for salaries persists, this according to BankservAfrica’s latest Disposable Salary (BDSI) and Private Pension (BPPI) indices.

The indices track take-home pay and pensions paid via the South African payment system on a monthly basis. The data offers valuable insights on South African consumers as well as salary and pension trends.

Year-on-year real disposable salaries declined in August for the third consecutive month and for the fifth time in 2016, with employees taking home -2.5% less due to increased inflation.

“In the second quarter of 2016 the final consumption expenditure by households increased by 1% year-on-year while total domestic expenditure decreased by -0.5% year-on-year,” says Mike Schüssler, Chief Economist at Economists dotcoza.

“While workers received salary increases in nominal terms, the real value for these ended up being lower due to the higher rate of inflation,” explains Dr Caroline Belrose, Head of Knowledge and Risk Services at BankservAfrica.

Inflation averaged at 4.6% in 2015, far lower than current inflation of 5.9%. Therefore, the typical inflation plus salary increases are effectively not beating this year’s inflation. Furthermore, above inflation increases on medical insurance and real personal income tax contributed to the growing gap between gross and net salaries.

“Other than early last year, when government – the largest employer in the data – delayed salary adjustments for three months, there are no examples in the recent past of such slow nominal growth in average disposable salaries,” says Schüssler.

The BDSI is at risk of showing a real decline in salaries for the entire year, should the current trend hold. For the first eight months, real take-home salaries declined by -0.4%.

Pensions, not salaries keeps domestic economy going

The real private pension payments for 650,000 pensioners measured in BankservAfrica’s Private Pension Payments (BPPI) increased by 1.7% for the first eight months of 2016, compared to the same period in 2015.

“Pension payments increased by 3.5% in real terms and by 9.7% in nominal terms”, says Dr Belrose.

The median private pension showed the fastest growth since the BPPI’s inception, increasing by 14.3% year-on-year. The typical pensioner has therefore had a relatively good increase in pension payments, which could also be a function of the weaker Rand.

“The typical pensioner received 45.7% of the typical disposable salary, the highest since BankservAfrica records began tracking private pensioners,” says Dr Belrose.

Total pension payments were 13% higher in August 2016 than in August 2015. Total salary payments only increased by 5.4%, far lower than the August inflation rate of 5.9%.

“While household consumption expenditure is still slightly positive, it is clear that the domestic economy is being kept alive by the increases that pensioners are getting rather than the salaries,” says Schüssler, noting that the sales of durable goods, such as motor cars, are in the doldrums. These items are less likely to be bought by pensioners, who draw an average pensioner payment of R6 495.

“However, large pension assets are positive for keeping the economy alive during difficult times. The advantage of having the sixth highest pension assets in the world is paying off,” he adds.


Mike SchusslerDr Caroline Belrose
Chief Economist,
Economists dotcoza
Head of Knowledge and Risk Services,
BankservAfrica
mike@economists.co.zacarolineb@bankservafrica.com
www.economists.co.zawww.bankservafrica.com

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