SA pensions on the up

Pensions paid into bank accounts grew by 8% in April compared with the same time last year, according to the BankservAfrica Private Pension Index (BPPI). When including payments of over R100 000, the total increase is 12%.

BankservAfrica says the number of such lump-sum payments was up nearly 21%, which either pointed to more people retiring or being retrenched. It said very few people would receive payments of over R100 000 per month after tax, pension and medical insurance is deducted, presuming that the sharp increase pointed to a spike in pension payouts or severance packages.

But pensions seemed to be on a very high growth trajectory in general. Over the past five years, the average pay-out has gone from around R4 750 at the end of 2013 to just over R6 200 in March 2016, increasing by about R1 500, or 31.5%.

“I don’t quite understand what is happening with pensions,” says Mike Schüssler, chief economist at Economists.co.za. “But the data certainly points to an increase in large payments.”

BankservAfrica suggested this increase might be explained by retirement funds investing money offshore and a weak rand helping to increase pension payments.

Average take-home pay was also significantly up in April, increasing by 7.4% (or R892) to R12 877, compared with last year. According to the BankservAfrica Disposable Salary Index (BDSI), however, it doesn’t mean the economy has suddenly turned around. The unusual spike in salary payments was due to civil servants receiving their increase, which was paid three months late last year, thus distorting the year-on-year data.

“It means that for the next three months, the BDSI is going to reflect artificially-high increases in salaries,” says Schüssler. “Nevertheless, I still contend that it’s a slower salary increase environment at the moment. I think we are going to see a downward trajectory in real incomes for a long time.”

Schüssler says inflation is going to remain high for the rest of the year and believes the South African Reserve Bank’s forecast of 6.7% average inflation in 2016 is a conservative one.

He believes most companies are backward-looking, meaning they will have looked at last year’s inflation which averaged 4.6%, when calculating salary increases. Two years ago, he says it was not uncommon to see salary increases go up to 3% above the rate of inflation but there has been a steady decline ever since.

“They’ll add a percent or a percent-and-a-half, and that will give people a little over 6% in terms of their annual increase. When we get to next year this time, then it will start changing again. But this year is going to be a tough year for consumers.”

Also, because minister of finance Pravin Gordhan only allowed for a 3.4% adjustment for inflation when he announced the new tax brackets, BankservAfrica says most people will in effect pay about 2% more in taxes in real terms.

“Meanwhile, the current inflation shock is also influencing the payments to medical insurance schemes which are also often deducted before an employee’s take-home pay lands in the bank,” reads the BankservAfrica report.