The results of the Altron FinTech Household Resilience Index (AFHRI) for the second quarter of 2025 were released today, confirming some relief for households during the first half of the year.
Although the AFHRI showed a healthy year-on-year improvement of 2.3%, the average annual increase in the financial resilience of households since the Monetary Policy Committee’s interest rate hiking cycle started is barely above zero.
Modest declines in the prime rate have nevertheless assisted the recovery of the AFHRI.
With an average annual population growth rate of 1,4% since 2014, it is clear that the average financial disposition of South African households has continued to decline.
This unfortunate development is mainly due to the highest interest rates in 15 years, which led to a sharp increase in the debt-servicing costs of households.
Compared to the last comparable quarter before the Covid-19 pandemic, the financial disposition of South African households has improved at an average annual real rate of merely 0,5%, which is marginally lower than the average annual real rate of GDP growth over the past six years.
The average annual increase in the AFHRI of 1,1% since the inception of the index in the first quarter of 2014 is virtually on par with the increase in the GDP, but households have fared significantly worse than the total economy over the past three and a half years.
Impact of pension fund withdrawals
The introduction the so-called ‘two pot’ system which allows early access to a portion of a person’s retirement savings in September 2024, has already made a noticeable impact on the South Africa’s economy.
The amended regulations provide for a capped portion of retirement contributions that can be placed into a savings pot and that can be accessed before retirement, and a retirement pot, which retains a larger portion of retirement savings until a person stops working.
People that choose to access the savings pot have to bear in mind that withdrawals are taxed at a retirement fund member’s marginal income tax rate.
The South African Revenue Service initially projected that it would collect R5-billion in additional tax revenue from such withdrawals, but actual collections exceeded these expectations by reaching almost R13-billion by March 2025.
The impact of the two-pot system has also been visible in the AFHRI, with the indicator for lump-sum pension fund withdrawals during the fourth quarter of 2024 and the first quarter of 2025 recording year-on-year increases of 35% and 40%, respectively.
In the absence of these unnatural increases in household incomes, the average annual improvement in the AFHRI since the start of the interest rate hiking cycle would have been even closer to zero.
Any doubt over the negative impact of the recent record high levels for the prime lending rate on the financial security of South African households is dispelled by that fact that lowering of the prime rate to 7% in mid-2020 showed an AFHRI improvement from a Covid-19-induced low of 104.1 to 113.8 – an increase of more than 9%.
The higher interest rates automatically raised the ratio of debt costs to disposable income of households, leaving the average household no choice other than to curb consumption expenditure – which remains the main driver of demand and economic growth.
According to economist Dr Roelof Botha, who compiles the index on behalf of Altron FinTech, “The unduly restrictive monetary policy (in the absence of any sign of demand inflation) actually represents a self-inflicted suppression of economic activity. This has resulted in two successive years of GDP growth below 1%.”
With GDP forecasts for 2025 by the panel of economists polled by Unisa’s Bureau for Market Research ranging from just above zero to 1,3%, it seems obvious that more interest rate cuts are urgently required for meaningful employment creation to occur.
Results of the AFHRI for the second quarter of 2025
The following table summarises the performance of the different indicators comprising the AFHRI over three different periods, i.e. since the last comparable quarter before the Covid-19 lockdowns – Q1 2020; quarter-on-quarter; and year-on-year (percentage changes in real terms).
The period since the first quarter of 2020 is regarded as relevant to gauge whether or not the financial resilience of households has fully recovered from the pandemic.
| % Real change in the AFHRI indicators – second quarter 2025 | |||
| % Since | % | % | |
| Indicator | Q1 ’20 | q-o-q | y-o-y |
| Civil debt defaults (reciprocal) | 34.9 | 4.5 | 18.8 |
| Unit trust assets | 54.3 | 5.5 | 13.8 |
| Ratio – household wealth to income | 26.6 | 3.3 | 7.1 |
| Long-term insurance surrenders | -8.3 | 10.2 | 4.9 |
| Ratio – household income to debt costs | -5.7 | 1.1 | 3.4 |
| Short-term insurance premiums | 24.8 | 1.2 | 2.9 |
| Household consumption expenditure | 5.7 | 1.8 | 2.8 |
| Annuities received | 32.5 | 6.0 | 2.4 |
| Household disposable income | 7.1 | 3.6 | 2.3 |
| AFHRI | 3.5 | 1.6 | 2.3 |
| Employment – public sector | 3.5 | -1.2 | 1.8 |
| Official pension fund lump-sum payments | -9.5 | -3.2 | 1.5 |
| Salaries – public sector | -5.0 | -0.3 | 1.4 |
| Credit impairments by banks (reciprocal) | -22.3 | 1.3 | 1.0 |
| Employment – private sector | 2.3 | 0.5 | 0.7 |
| Salaries – private sector | 0.3 | 3.0 | 0.6 |
| Credit extension to households (reciprocal) | -0.5 | 0.2 | -0.1 |
| Ratio – household income to debt | -1.6 | 0.5 | -0.5 |
| Ratio – salaries to GDP | -9.3 | -6.3 | -2.2 |
| BetterBond house price index | 4.0 | -0.1 | -3.1 |
| Long-term insurance claims paid | 24.9 | 4.2 | -5.7 |
| Note: Ranked by % change since Q2 2024 (y-o-y) | |||
An encouraging feature of the latest AFHRI is the stability that has crept in for the average index value over the past four quarters. The four-quarter average index eliminates seasonal influences, especially with regard to the agriculture sector and also the retail spending spree that boosts economic activity during the fourth quarter of each year.
The latest AFHRI reading of 113.7 (on the basis of a four-quarter average) is slightly higher than the value for the first quarter of 2025, but the year-on-year increase is considerably more impressive at 2,6%.
The prime rate cut to 10,75% in May predictably led to a further strengthening of the AFHRI during the second quarter, with 15 of the 20 indicators comprising the index recording positive year-on-year trends and 12 of them also posting quarter-on-quarter growth.
Importantly, both the employment levels and the salaries in the private sectors of the economy improved during the second quarter of the year, albeit only marginally, at 0,5% and 0,7% respectively.
A feature of the second quarter AFHRI results was the increase of almost 14% in the real value of unit trust assets, buoyed by the sterling performance of the all-share index of the Johannesburg Stock Exchange.
Although surrenders of long-term insurance policies increased by almost 5% in real terms year-on-year, the lump-sum withdrawals from pension funds seem to have stabilised after the spike that occurred immediately after the introduction of the two-pot system in September 2024. The year-on-year increase in household disposable income of 2,3% is also encouraging and in line with the overall AFHRI.
Johan Gellatly, MD of Altron FinTech, says the latest AFHRI data quantifies the persistent financial pressures confronting South African households as we move through 2025, despite the marginal year-on-year improvement.
“While the year-on-year improvement is encouraging, the reality remains sobering – household financial resilience has improved by barely 0,2% annually since the interest-rate-hiking cycle began.
“The impact of the two-pot system, which generated R13-billion in tax revenue, has artificially inflated household incomes and masked what would have been an even weaker recovery.
The May rate cut to 10,75% has provided welcome relief, as shown by 15 of our 20 indicators showing positive trends, but this is merely a first step. With GDP growth forecast to remain below 1,3% for 2025, further aggressive monetary policy easing is essential to restore genuine household financial stability and create the conditions for meaningful employment growth.”