South Africa’s middle-of-the-road private pensioners

By Bruce Cameron (Semi-retired founding editor of Personal Finance of Independent Newspapers and co-author of the best-selling book, The Ultimate Guide to Retirement in South Africa.)

BankservAfrica’s data insights into the lives and incomes of South Africa’s private pensioners

Many pensioners who could claim state pensions of R1 780 a month are not doing so.

Despite the changes in the economy, South Africa’s privately banked pensions have shown positive growth over recent years. Yet, some pensioners are finding themselves in the middle-of-the-road of not having enough funds to cover their monthly expenses and necessities such as food, utility bills and medical costs.

“In January, the average pension increased by 3.1% in real terms, according to the BankservAfrica Private Pensions Index data. In nominal terms, the average was  R8 239. But the typical pensioner receives only R5 531,” says Shergeran Naidoo, Head of Stakeholder Engagements: BankservAfrica.

“Although the pension increases have performed well, even outperforming take-home pay, we are aware many are unable to live out their golden ages as their income is stretched to cover their cost-of-living expenses,” says  Mike Schüssler, Chief Economist at economists.co.za.

This month, the BankservAfrica Private Pensions Index takes a closer look at the pension income and lives of South Africa’s older folk, one of the fastest-growing segments of our population.

In January 2020, BankservAfrica had about 649 000 banked private pensions on record. Of these, about 341 000 received less than the old age grant threshold, which means that more than half of individual pensioners could apply for the state’s grants pay-out of R1 780 pm (this will soon be increased to R1 860 pm, as announced in February’s Budget Speech). According to our estimations,  there are just over half a million other private pensioners who are also eligible for old age grants.

“However in reality, for an older citizen to receive the R1 780 state grant, they cannot have assets of over

R1.1 million, including their pension and home,” explains Schüssler.

Many would argue that it is time for government to allow pensioners with a primary residence to claim old age grant benefits, regardless of their assets. This would provide some relief for senior citizens who, in all likelihood, have paid income tax over many years.

“Water, lights, rates and taxes, as well as medical insurance, would take up at least 60% of a pensioner’s income. That leaves very little for other essentials, such as food and clothes. At the combined R7 311 pm of the typical pension and old age grant, this would take up 48%,” says Schüssler.

There is the concern that if the decision on prescribed assets on pension funds goes ahead, the impact will be felt most amongst poorer and typical private pensioners. Many are of the view that investment returns for private pension funds will not be as anticipated, and pension pay-outs will lower.

“Insights such as these from the BankservAfrica Private Pension Index (BPPI), which is also the only monthly private pension tracker in the world today, helps the country understand the situation that pensioners find themselves in and that many living in privately owned homes are faced with,” ends Naidoo.

For more information on retirement planning click here

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