May reflected a slight increase of 0.9% in take-home pay for the third consecutive month in 2017, according to BankservAfrica’s latest Disposable Salary Index (BDSI) data, which also showed that South Africa’s formal workers are faring slightly better than in 2016.
According to the May BDSI, the seasonally adjusted real take-home pay averaged at R13 790 in May 2017, slightly lower than April’s R13 914. With most of the last two years indicating declines in real take-home pay, the overall picture reflects no real salary changes in the formal sector. In nominal terms, the average disposable salary increased by 6.6% on a year-on-year basis – slower than the 7% comparative increase between April 2017 and April 2016.
“The BDSI indicates that the trend of shrinking salaries has been replaced with slowly increasing salaries. This is due to 2016’s higher consumer price inflation which helped to lift salary increases by the public sector,” explains Mike Schüssler, chief economist at Economists dotcoza.
Data published by the Economists.co.za and the National Treasury in April shows personal taxes (8.8%) increased faster than the rate of total banked salaries (6.4%). This trend – which has also become more distinct over time – can be attributed to the national budget revenue that has not made full allowance for inflationary adjustments when tax brackets are adjusted.
“It is likely that this trend will continue for some time – and could also be the reason for the slow increase in real terms as tax brackets are adjusted by 1% while inflation averaged 6.4% in 2016. As salary adjustments are largely based on the inflation rate, much of the increases in nominal salaries are taxed at higher tax rates. This makes it difficult for salaried employees to keep up their lifestyles as the higher tax rate impacts take-home pay,” explains Schüssler.
Gross salary increases were also adjusted by medical insurance. According to Statistics SA, the average increase for this was 10.3% in May. With average salary increases being 0.9% in May, it is likely that banked formal sector employees are averaging gross salary increases of over 7% before taxes with medical aid deductions reducing take-home pay increases to 6.6% or so.
“Overall, it is likely that the disposable salaries’ underperformance will affect consumer confidence and drive sentiment down in the coming months with retail, domestic tourism and car sales all coming under strain,” says Schüssler.
Private pensions are still growing at a strong pace with average banked pensions increasing by 3.7%, according to the BankservAfrica Private Pension Index (BPPI) May data. This is the strongest growth over any annual period since October 2015.
The average pension paid in real terms was R6 555 in May 2017.
The typical pension in nominal terms – as measured by BankservAfrica – grew slower by 2.3% on a year-on-year basis. The typical pension paid was R 4 561, which is only 69.6% of the average pension. The difference between the median pension and average pension increased markedly over the last six months.
“Banked private pensions have been outperforming salaries for almost three years and have climbed from 43% of salaries in January 2013 to 49.1% of salaries in May 2017,” says Schüssler. However, since January 2013, the BPPI has added 6% more pensioners onto the system. The value of total nominal pensions has increased by exactly 50% since January 2013.
“There is the concern that pensioners are withdrawing their pensions faster than its pace of growth – and the effects of this will be felt at a later stage,” says Schüssler.