Big hit to pensions in South Africa
Pension payments in South Africa have dropped in real terms over the first eight months of 2024—whereas take-home pay has continued to trend upwards.
The BankservAfrica Private Pensions Index (BPPI), which tracks the pension payments of about 700,000
pensioners, moderated in both nominal and real terms in August 2024. The BPPI reflects only pension payments to actual pensioners.
“The average nominal private pension subsided to R11,122 in August 2024, lower than the previous month, but still up from January’s R10,868, and still 3.4% higher than a year earlier,” said Shergeran Naidoo, BankservAfrica’s Head of Stakeholder Engagements.
In real terms, the average BPPI for August 2024 moderated every month and dipped 1.0% below a year prior.
When comparing the average nominal BPPI for the first eight months of 2024 to the prior corresponding period, a 4.9% increase can be seen.
That said, the real BPPI declined marginally in the first eight months of 2024 compared to the corresponding period in 2023.
The pension industry also remains in focus following the implementation of the Two-Pot retirement system on 1 September 2024.
The new dispensation will likely increase members’ awareness about their retirement savings, which BankservAfrica welcomed.
Take-home pay increase
The BankservAfrica Take-home Pay Index (BTPI), which tracks the average nominal take-home pay among an estimated 4 million salary earners in South Africa, improved for the fifth month in August.
“The average nominal take-home pay reached R16,582, showing a 6.7% increase compared to a year ago. In real terms, take-home pay also tracked higher at R14,520 in August 2024 or 1.9% up on a year ago levels,” said Naidoo.
Take-home pay has been surprising on the upside in 2024, reflecting improving economic fundamentals in South Africa.
South Africa has not only seen load shedding being suspended for nearly six months but also a notable moderation in inflation, a new political landscape and the first interest rate cut since March 2020.
There are also firm indications that the Government of National Unity (GNU) will focus on speeding up structural reforms to address obstacles to growth and job creation.
A comparison over the first eight months of 2024 to the corresponding period shows a 6.6% increase.
In real terms, there was also an increase of 1.3%.
“These numbers suggest 2024 will likely be the best year for salaries since 2020 – or the first year in which the increase in average nominal take-home pay beats inflation since 2020,” said Elize Kruger, Independent Economist.
“This improvement in purchasing power will go some way to provide much-needed relief to cash-strapped households and could provide support for consumer spending.”
Given the importance of inflation as a determinant of salary increase, inflation expectations are in sharp focus.
The latest Inflation Expectations survey, compiled quarterly by the Bureau of Economic Research (BER), showed that expectations of average headline inflation are at the target range of 3% to 6%, at 4.8% for both 2025 and 2026, and still at 5.1% for 2024.
That said, the Reuters consensus forecast for average inflation stood at 4.7%, reflecting the recent appreciation of the rand exchange rate, moderation in food price inflation, and lower fuel prices. This was a notable drop from the 5.0% seen in January.
Thus, the moderation in expectations throughout 2024 has contributed to a recovery in the average real wage increase so far in 2024.
With average CPI expectations showing a downward trajectory, the South African Reserve Bank cut interest rates by 25 basis points in its latest meetings.
“With indications that the average salary increase could realise around 6% in 2024, a real increase of around 1.3% is firmly on the table, as signalled by real BTPI data, a scenario that suggests a moderate recovery in purchasing power of salary earners,” said Kruger.
“Seen in combination with the expectation of further interest rate cuts – with cumulative cuts of 125bps by May 2025 – and further relief at fuel pumps in the short term, the potential for an uptick in consumer expenditure and some debt repayment is on the rise.”
Read: Eskom tables massive 2025 electricity price hike for South Africa
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