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Pension Funds
Friday, April 24, 2015 - 02:16
Baby boom boost

The age group 60 and over – also known as the “baby boomers” - is the fastest growing population group in the country. In 2014, it was estimated that this group was made up of over 4.4 million individuals, which represents growth of 3.2% against a total South African population growth of 1.4%. According to the mid-year population statistics from StatsSA, those over 60 now make up 8.1% of the population, up from 7.9% in 2012. Very little research has been done thus far into how people over 60 get an income.

Labour Force figures in 2012 revealed that there were 4.14 million people aged 60 and over in South Africa, with 42.1% of these being male and 57.9% female. Nearly half or 49.1% were married while the 50% were not in any relationship (0.9% refused to say or did not specify). Although older people overall had a higher number of people getting an income, this income for many is not high. According to BankservAfrica 2012 figures, the median income among this group in the last eight months was between R2 000 and R3 000 per month. This is about a third of the population that is measured in the BankservAfrica Disposable Salary Index.
The Labour Force 2012 data also found that 474 000 of citizens over 60 were still working and of them over 10 400 were 75 and older. Older people who work are said to have a higher median income at around R4 500 per month, which makes up 11% of this segment.
Social Security Agency of South Africa statistics show 2.89 million received an average R1 155 government old age or veteran grants per month. This represents 69% of the 60 and over age group.  Furthermore, the 2012 General Household Survey stated more than 40% of South African households did not receive an income from work and most of them relied on government social security grants. We estimate that more than 2.2 million of the 14.5 million households have the old age grant as a major source of income.
This means that combined with private pensions, about 2.8 million over 60 households have an income from either a private pension or an old age grant. On an individual basis however we believe that this age group has an income from either government grants or private pensions.



Pie chart 1: Sources of income for over 60’s in South Africa
Source: FSB; SASSA; 2012 General Household Survey and LFS compiled by economists.co.za.

Others could be rent, bank savings or no income. There could likely be some double counting but we don’t expect this to materially change the percentages. This graph only looks at individuals, which is not how people spend their income as that would be mainly in the household context.
According to the 2012 Financial Service Board (FSB) data, there were just over 741 000 private pension payments in South Africa. This means that at most, 18% of this segment receives a private pension. This is the second largest source of income for those 60 and over. The FSB also revealed that this group has an average income before taxes and other deductions of R4 824 per month. This was more than four times the income of those with an old age grant.
There may be some double counting taking place here (although at most it will be about 10%) as having two pension administrators is costly and therefore most will put their money from different funds into one fund. However Government and State Owned Enterprise pension funds are managed separately and people with secondary pension savings will have different administrators handling their pensions.
About 2% of people over 60 do not receive any of the above, but may be partners or spouses of people on private pensions or have other forms of income such as rental income. There may still be some who have no income as they are unable to get an old age grant due to other factors such as missing ID books.
While two million of those over 60 still have partners or spouses, according to the 2012 General Household Survey it seems that there are only about 3.4 million households and it is unlikely that many people over 60 will not have an income at all.
Although the General Household Survey does not differentiate between private pensions and government old age grants, it does indicate that about 77% of all old age households report a pension (this includes the war veterans pension, that only a few receive). This shows that the 3.63 million pensions and old age grants get paid to approximately 2.7 million households and is an indication that the average household within this segment receives a one and a third pension pay out. Most of these would be to family households and are unlikely to constitute an additional payment in single households. The majority of these would be government grants constituting an additional payment to an additional household member.
Meanwhile, 11% are getting an income from work (including 1.5% who get both work and pension – but this is probably under-reported). This indicates that 87% of all households in the over 60 category get some form of regular income from work or pension although the majority receive government grants.
The income from private pensions was R43 billion while the income from government grants was R39 billion and income from those still working was about R25 billion. In total these three categories made up just over R107 billion in 2012. Private pensions make up 40% of the total income of older people in South Africa. It is likely that another few billion could be added from other income such as unit trusts; bank savings as well as rentals. Of course in many cases children also assist their parents. These incomes are however difficult to quantify but are unlikely to be more than private pension income in total.
It can be concluded that although the majority of older people receive government grants, the largest amount of income would be from private pensions.

Pie chart 2: Sources of income for over 60’s in South Africa
Source: FSB; SASSA and LFS compiled by economists.co.za. Note: Excludes savings income from banks unit trusts and rentals but these sources will be much smaller than the above three.

Private pensioners are only about 20% of those receiving a government old age grant or pension. However the monthly private pension is about four and a quarter times as much as the monthly old age grant income. Therefore private pensions form an important source of spending in the South African economy.

The BankservAfrica Private Pension Index (BPPI) and how it works

Like the BankservAfrica Disposable Salary Index (BDSI) the private pension index is an income gauge of money paid into bank accounts. While we do not know the exact number of people we do know the exact number of accounts and this shows that there are about 633 000 payments (for 2014 on average) going through the BankservAfrica system, which have been identified as pension payments.
This number does change slightly from month to month but out of the known universe of 740 000 private pension payments in 2012, it appears that the BankservAfrica payments system captures over 85% of the pension payment accounts.
This indicates that the sample size of private pensions is extremely good via the BankservAfrica payment system.
Furthermore we do not count any payment that averages over R100 000 as these would typically be lump sum pay-outs of the amount that people can take out of their pension when they go on pension. These could also be pay-outs of the remaining pension in an account to family of a deceased. The remaining amount can often average well over R350 000 for each payment and as with the BDSI they do tend to distort the averages at certain times of the year. For 2014 this reduced the number of accounts from 633 000 to 628 000.
In addition we have also noticed that the numbers of payments are more consistent when we count the month from the second to the first of the next month, as payments do vary when a month ends on a Sunday. We then calculate a three month moving average to improve our trended analysis as some months are a little different to others.
We also tested our income averages against that of the FSB annual report of 2012 which showed that the average income from private pensions in 2012 was R4 824 per month and our BankservAfrica data for the last eight months of 2012 was R4 600 which shows that some taxes and other fees were probably deducted from pensioners (at the higher end of pensions income taxes would come into play) and we are therefore comfortable that our BankservAfrica Private Pension Index reflects what is happening on the ground.
On average around 95% of private pensions end up in people’s bank accounts and that is much more than the 65% of gross salaries that end up in bank accounts of working people; which our BDSI indicates using QES (Quarterly Employment Survey) figures.
Sanitised data is available from April 2012 and daily data from November 2012, allowing us to better track month end payments that sometimes only happen on a Monday as a result of the month ending on a Sunday. This is enough to help us establish a trend but not enough yet for things like seasonal adjustments and long term correlations.
The pension data does move up and down in the short term but this may be seasonal and share price reliance may be at play as well.
 

Copyright © Insurance Times and Investments® Vol:28.4 1st April, 2015
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