Are SA pensioners doing as badly as we had thought?

Retirement can be happy

By Mike Schussler

Pensions in South Africa have been on the rise for six and a half years. In December 2019, banked private pensions increased by 3.9% year-on-year to reach R7 071 in real terms.

While this value may seem insignificant, it does show that pensions have performed well in a country with low overall market returns in the last 5-6 years.

We are not talking about the number of people on a pension or even the number of private pensioners.

We are discussing the trend of private pensions that have helped senior citizens survive the weak economy relatively well.

Since June 2012, the BankservAfrica Private Penson Index (BPPI) has been recording South African pensions that are paid to those people who are retired but who saved a large proportion of their salary in the decade before retirement.

We often hear that people have not saved enough for their pension and our data tends to agree with that – as private pensioners receive roughly half the money from their pension than they had received as take-home pay.

Nobody will argue with any of the above statements. But here is the strange thing: pensions have beaten inflation 94% of the time. This is far more than salaries.

When our measurement of private pensions started, it showed that pensioners only banked about 40% of the level that their take-home pay had been. Now, more than six years later, private pensions are very close to 50% of take-home pay.

While the equity market has been in the doldrums for most of the BPPI, one would have expected pensions to struggle to keep up with salaries. But perhaps pensioners and their fund managers knew something. and kept more of the investments in interest-bearing instruments.

So, despite the poor economy, pensions have done remarkably well.

Many funds are not performing much above inflation. Yet pensioners are receiving higher than inflation payouts year after year!  In the context of a weak economy, this is astounding!

While a large segment of our pensioners are retired civil servants and they receive a pension based on their final salary rather than investment returns (and their increases are linked to civil servant salary adjustments unlike the rest, who depend on investment returns), the fact is that an estimated two-thirds of our pensioners are subjected to returns in their pension funds or retirement pots.

Yet the average increase over nearly 80 months and on an annual basis has been 2.9% higher than inflation. This again is incredible, as the private pensions we monitor are after reductions by fund managers and other expenses.

So the strange case of ever-increasing pensions rests partly on favourable real rates while it relies far less on the stock market. Did pensioners know that the Johannesburg Stock Exchange (JSE) would not be a good investment, or were they drawing down their money too fast?

The latter could be the case, but since June 2012 there has been no evidence of a crash in private pension payments, which is what one would have expected after five years or so of fast drawdowns.

Moreover, our previous and unpublished data suggest increases were lower than interest rates and did not experience the same level of growth as the JSE’s recovery after the great recession of 2009.

While we cannot answer the question thoroughly, it does appear that interest rates and yields play a far more critical role in helping pensioners receive faster-growing payments than the inflation rate.

The last six and a half years have seen real private pensions increase by 21% and the average private pensioner is 18% better off! This is a truly remarkable story if one considers that take-home pay has increased by less than 5% over the same period!

BankservAfrica has the only monthly pension time series in the world. This provides ample evidence that even in a relatively young country, pensioners have become a more substantial group to target.

This is due to two factors: private pensions are growing faster than salaries (or at least take-home pay, as tax rates have effectively increased in the last six years). The other is that the number of pensioners is increasing while the number of formally employed is stagnating (at least from what is evident in our data).

The number of people receiving social pensions from the government is also growing and therefore private pensions make an ever more critical part of the SA consumer market.

With retrenchments very likely in the years ahead, pensioners will play an ever more significant role in the South African economy.

Mike Schussler is the founder of

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