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Typical pensioner income up 17% in real terms, review shows

Overall growth in pensions becoming ‘relatively more important’, especially for retailers.
South Africa has the eighth largest pension fund assets in the world and over 16.6 million pension fund accounts, according to the FSB. Picture: Shutterstock

In February private pensions paid to South Africans grew at the fastest rate in five years, a report from BankServAfrica indicated. Average private pensions increased by 11.5% year-on-year in February in nominal terms and private pensioners received R7 029 on average in February 2018.

Despite the 4% inflation rate reducing private pensioner payments to 6.8%, BankServAfrica indicated this was the highest year-on-year growth it had recorded.

Chief economist at Economists.co.za, Mike Schüssler, says it is a good thing that pensioners are receiving payments far above the inflation rate. He says he expected a 3.5% increase with inflation, but the rate almost doubled compared to his expectations. “It’s a welcome relief that this is going up,” he said.

The BankServ report observes and measures salaries and pensions paid into South Africans’ electronic accounts via the National Payment System.

According to the report, pension growth remains below half of the level of take-home pay, but Schüssler says that pension growth rates are catching up. Compared to five years ago, the average pension paid is now 5% higher.

The average pension paid in 2018 is 48.9% of the average take-home pay, whereas five years ago, in January 2013, the average pension was 43.3% of the average take-home pay.

Over the last five years, the growth in pensions outpaced wages, and can be attributed to good pension fund performance and also because pensioners are drawing down a higher percentage of their retirement income to beat inflation.

Read: If you lucky, your take-home pay picked up a notch

Schüssler said that the increase can also be attributed to the stronger rand and adds that because pensioners are not cashing in early, they are getting more out of it. In effect, Schüssler says pensioners are becoming more and more important in sustaining the economy.

Pension growth increases are imperative because the life expectancy of pensioners is increasing with the help of medication and modern technology. Schüssler said that private pension payments help sustain people and families. Many pensioners are not only using the money for themselves but for their children and grandchildren as well.

BankServAfrica’s payment system captures around 680 000 pensioners’ data, and states that the typical private pensioner receives R4 870 per month.

According to BankServ Africa, if private pensions did not exist, the state would have to find an additional R8 billion a year to support senior citizens.

Five-year review

BankServAfrica, for the first time, compiled a five-year review of private pensioner payments.

In the most notable of changes; in January 2013 59.1% of all private pensioners received less than R4 000 a month, but by February 2018, this percentage dropped to 43%.

The most significant change over the five-year period was private pensioners receiving between R10 000 and R25 000 a month.

In 2013, BankServAfrica recorded that about 9.8% of people fell within this region, but by 2018, this percentage doubled to 20.6%.

Out of the pool of private pensioners, those receiving more than R25 000 a month was recorded at 1.1% in January 2013, however this picked up to 2.5% in February 2018.

Estimated share of private pensions per broad income interval January 2013

Source: BankServAfrica

Estimated share of private pensions per broad income interval February 2018

Source: BankServAfrica

According to the report, this means that the value of average private pension payouts increased by 50.1% between January 2013 and February 2018 in nominal terms, and in real terms, the five year average private pensions payments value increased by 15.2%.

The typical pension performed better and grew by 54% in nominal terms to R4 870 per month in February 2018. In real terms the typical pensioner’s income grew by 17%.

Schüssler said that the top end payments are taking off as they are beating inflation but the overall growth in pensions means that it is becoming “relatively more important” and will gain in importance over time. 

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What if the pensioners are increasing their percentage withdrawal to combat inflation ? With increased percentage withdrawal, the pensioners fund could be depleted earlier than expected.

Mike are there 680000 pensioners or 680000 pension payments going through? My father gets 3 separate pension payments each month.

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