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South African businesses relying on consumer spending face a new reality: salary earners are no longer keeping the domestic economy going – instead it is the nation’s pensioners who are keeping it alive, says a leading economist. This development emerged in statistics that track real take-home salaries, which are down -0.4% so far this year. Private pension payments, meanwhile, increased by about 3.5% in real terms. Before you think the nation has an army of cash-flush pensioners, bear in mind that the average pensioner draws around R6 500 – which is not very much when you consider the high cost of living. Retired people will be spending their money on basics, like food and over-the-counter medicines, and small luxuries perhaps, like occasionally eating out or television subscriptions. But, they won’t be buying big ticket items, like cars, furniture and appliances, in big numbers. The squeeze on salary earners, meanwhile, explains why a whole range of businesses – from medical schemes to estate agents – are finding it challenging to grow revenue. The statistics also highlight that it is becoming a lot more difficult for hard-working taxpayers to set aside money to save and invest for the future. – Jackie Cameron
By Carin Smith
Cape Town – For the first eight months this year, real take-home salaries in South Africa declined by -0.4%, according to the latest BankservAfrica Disposable Salary Index (BDSI).
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.
“While workers received salary increases in nominal terms, the real value for these ended up being lower due to the higher rate of inflation,” explained Dr Caroline Belrose, head of knowledge and risk services at BankservAfrica.
Typical “inflation plus” salary increases are effectively not beating this year’s inflation and the BDSI could end up showing a real decline in salaries for the entire year, should the current trend hold.
Inflation averaged at 4.6% in 2015 compared to the current 5.9%. Above inflation increases on medical insurance and real personal income tax furthermore contributed to the growing gap between gross and net salaries.
Pensions, on the other hand, continued to drive the SA economy during this period where the downward trend for salaries persists, Mike Schüssler, chief economist at Economists dotcoza, told Fin24.
BankservAfrica’s BDSI and its Private Pension Index (BPPI) for August were both released on Wednesday. The indices track take-home pay and pensions paid via the SA payment system on a monthly basis.
“In the second quarter of 2016 the final consumption expenditure by households increased by 1% year-on-year (y/y), while total domestic expenditure decreased by -0.5% y/y,” said Schüssler.
“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.”
— Nation Builder (@buildSA) August 30, 2016
Pensions keep domestic economy going
The real private pension payments for 650 000 pensioners measured in the 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”, said 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,” said 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,” said Schüssler.
He noted 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. The SA economy is, therefore, actually relying on spending by people with private pensions. This is clear from spending trends on pharmaceuticals and general groceries. He also pointed out that the fastest growing segment of the SA population is those over 65.
“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 added.
“The fact of the matter is that pensions have, in nominal terms, increased by 13% in August this year compared to August last year. If you look at total salary payments, they only increased 5.4%.”
In his view, while firms cannot give big increases due to the economic situation, the weaker rand means retirement funds with overseas exposure have benefited from the weaker rand.
#SouthAfrica: Consumer inflation slowed to 5.9% year on year in August, from the 6% reported for July
— ECN Africa (@ecn_africa) September 21, 2016
“So, it is currently a good news story for pensioners, while hard economic times are putting pressure on salaries,” said Schüssler.
In his view, the SA economy still appears to be “directionless”.
“I think if we did not have private pensions, retail sales would not have increased. Pensioners are playing a big role. They bring another angle to the economy. It is, therefore, very important that pensioners get their money and spend it,” said Schüssler.
“I think pensioners have been a long forgotten section and those with private pensions are coming into their own. That says something of SA’s financial maturity. Pensioners are important and making things happen more and more. Retailers will have to adjust their approach for them.”
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