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Johannesburg - Automated payments clearing house BankservAfrica launched its BankservAfrica Private Pension Index (BPPI) this week.
It is the first private pension data series in South Africa and one of the few available in the world today, according to BankservAfrica.
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 gross domestic product (GDP) ratio in the world in 2012, very little is currently known about how much South African private pensioners get paid in monthly income,” said 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 December 31 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 said.
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 reveal 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 hide some important detail on the lifestyle of typical pensioners as they earn less than the average figure," said Schüssler.
"Herein lies the problem that many pensioners face: How much of their pension must they use and how far must they cut back on their lifestyle in order to make ends meet on the 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," he said.
