With the December 2018 BankservAfrica data for take-home pay index available now, it is a good time to review the year and give a little more perspective on the real income that South African employees get to spend.
In the final month of the year, the average banked real-take home pay was R14 094, representing a 0,5% year-on-year change and a slight improvement from November. The average banked nominal take-home pay was R15 045, a 5,5% year-on-year change.
BankservAfrica tracks about 3-million salary earners every month via about 4 million payments a month paid into the national payments system (remember weekly wages get rolled into monthly totals) which allows South Africa to track changes in salaries and wages.
While the monthly data is a little jittery, the annual results give a great opportunity for some longer-term perspective.
In 2018, real take-home pay increased by just 0.4% in the South African economy for those who get paid into bank accounts electronically. With inflation averaging 4,6% for 2018, the average employee got an increase that was above the price level changes as measured by the inflation basket.
The BankservAfrica Take-home pay Index had an up and down year as at first and many pay negotiations resulted in delayed increases, which in turn resulted in an actual decline in real take-home pay. When the increases were finally paid, some back pay take-home pay shot up and was strongly positive for a few months. This was evident in August when public sector back payments took place.
However, towards the year-end, it seems that take-home pay declined somewhat as inflation shot up (partly due to massive fuel price increases). Finally, when the dust settled in December, the actual take-home pay increased just slightly on a year ago.
Take-home salaries (after taxes, pensions and in some cases medical expenses) did, however, beat inflation even if only a little. The nominal salary increases of 5% was, however, double the shopping inflation rate as retailers kept price increases low, but higher costs for fuel, medical and utility bills pushed up the average inflation rate to 4,6%.
The average real take-home pay for the whole of 2018 was R13 990 per month for the person receiving their salary via a bank account (before inflation, the average was R15 018 per month). The weak economy is not helping South Africans get salary increases although the average increase for the year is just above inflation.
Some increases were above 7%, which after tax and inflation would have resulted in an estimated 1,8% increase in real after-inflation terms.
Many private sector firms, however, remain under pressure resulting in less than inflation increases. Many employees are struggling to maintain their standard of living.
Overall take-home pay did at least result in higher retail sales as retail inflation was just about half the headline inflation rate for 2018.
The total increase in take-home pay over the last five years was just 1% as tax brackets were adjusted with about half the inflation rate. The weak economy also meant fewer employment opportunities for employees to negotiate better salaries at existing and other employers. Employers also struggled to increase salaries with inflation-beating increases.
A total increase of 1% after tax and pension in take-home pay over five years says that in essence, salaries were adjusted just for inflation on average. The worst year for real take-home pay was 2016 where there was a 1,1% decline in take-home pay after inflation while all the other years showed an increase of which 2018 was the smallest.
Pensions, on the other hand, increased by 4,6% between 2018 and 2017. The average real pension after inflation value was R6 880 per month for 2018 (R7 434 per month was the nominal value).
In December 2018, the average real private pension was R6855, a 3.5% year-on-year change. The nominal average value was R7 374 or a 8.8% change from December 2017.
However, private pension drawdowns are increasing perhaps as most asset classes did not have a 4,6% return in 2018. With an inflation average of 4,6% in 2018, the increase in private pensions was exactly double that of the inflation rate.
While pensions did increase faster than take-home pay, they are still less than half of its value.
But the disconnect between the banked take-home pay and private pensions has been very clear over the last five years. With South Africa’s population growth rate at an estimated 1,7% and 3,4% for the population aged over 65, pensioners are the fastest growing expenditure group in the country.