17 April 2018
SA private pensions shows strong growth over five years – BankservAfrica
Average South African private pensions pay-outs increased by 15.2% in real terms between January 2013 and February 2018
Private pensions have grown from strength to strength over the last five years and, in some ways is outpacing take-home pay as can be seen in the Five-year Private Pensions Review for South Africa1, released by BankservAfrica and Economists.co.za today.
“The BankservAfrica Private Pensions Index (BPPI) is the first time-series on private pensions as paid into bank accounts in the world. The system currently accounts for 900 000 people receiving private pensions of which BankservAfrica captures 680 000 or 75%,” says Shergeran Naidoo, Head of Stakeholder Engagement at BankservAfrica.
With South Africa holding the eighth largest pension fund assets in the world and over 16.6 million pension fund2 accounts, the BankservAfrica Private Pensions Index is significant for the country. The index provides a monthly view of private pensions’ performance and trends in South Africa, which includes the observation that private pensions have proved to be a resilient inflation beater over the years.
According to BankservAfrica’s data, in January 2013, 59.1% of all private pension pay-outs were less than R4 000 per month. About 30% of pensioners received between R4 000 and R10 000 while just under 10% were paid between R10 000 and R25 000. Out of all pensions received, 0.8% were between R25 000 and R50 000 while 0.3% received over R50 000 in their bank accounts for the month, says Mike Schüssler, Chief Economist at Economists.co.za
In contrast, by February 2018 the share of private pensioners receiving less than R4 000 dropped to 43% while 34.1% received between R4 000 and R10 000, according to Naidoo. The biggest increase was the share of private pensions receiving between R10 000 and R25 000. This doubled to 20.6% in 2017 from less than 10% in January 2013. The same also occurred for those receiving R25 000 to R50 000, which went from 0.8% share of private pensions to 2.1% with those receiving more than R50 000 per month increasing slightly to 0.4% from 0.3%.
The value of the average private pension pay-outs increased by 50.1% between January 2013 and February 2018 in nominal terms, according to Naidoo. In real terms, the five-year average value of private payments increased by 15.2%. In February 2018, the typical private pension pay-out was R4 870 per month.
It is not only the growth of pensions that is important to the economy but the fact that average take-home pay showed practically no growth above the rate of inflation in the five-year period. Private pensions, on the other hand, grew by over 15%.
“The growth in both average and median pensions is probably due to higher than inflation interest rates as equities did not fare quite as well,” says Schüssler.
When the BankservAfrica and Economists.co.za launched the Private Pension time-series in 2012, it tracked private pension payments into bank accounts that passed through BankservAfrica’s system. It was only from November 2012 that the BPPI tracked private pension payments into bank accounts using pension income interval levels. In the first months of the BPPI’s launch, the first months’ performance were not as positive. However, over time, private pensions have shown sustained growth despite inflationary movements. Moreover, the growth in private pensioners seems to have been 7% over this period.
As the retirement population of 60 years is growing at a rate of 3.4% a year, it may be that not enough people have saved for their pensions.
“Therefore, while the number of private pensioners grows, the total pensionable population is growing faster resulting in an increased need for government’s social assistance,” says Schüssler.
This creates some isolation for private pensioners although 43% get less than R4 000 per month, which is below the threshold for being eligible to receive state grants.
“More effort should be directed at private pensions, which has shown strong growth over the past five years, and holds greats value for the South African economy for the now and in the years to come,” ends Schüssler.
for full details refer to the report.