New data sheds light on how incomes plunge in the golden years


A woman, suffering from Alzheimer's desease, holds the hand of a relative on March 18, 2011 in a retirement house in Angervilliers, eastern France.

A woman, suffering from Alzheimer's desease, holds the hand of a relative on March 18, 2011 in a retirement house in Angervilliers, eastern France.

JOHANNESBURG -  At retirement, the average formally employed South African will see her income slashed by more than half. This is one of the findings of the Bankserv Africa Private Pension Index report released on Wednesday.

In December 2014, the average pensioner received a ‘take-home’ pension of about R5,722. The average pension grew by 8 percent last year, comfortably above the average CPI of 6.1 percent for 2014.

Bankserv Africa processes payments in the banking system. It facilitates the flows of funds between bank accounts, making financial transactions possible. The Private Pension Index is based on funds paid into bank accounts that are coded as private pensions.

According to Mike Schssler, Chief Economist at (the company that analysed the data), this index contributes to a better understanding of how South Africans fare in retirement. The &39;60 and over&39; age group makes up 8.1 percent of the population.

“While we do not know the exact number of people, we do know the exact number of beneficiary accounts and this shows that there are about 633,000 monthly payments (for 2014 on average) going through the Bankserv Africa system which have been identified as pension payments,” Bankserv says in a media release.

The average pension is pulled up by relatively few high pensions. If one looks at the median pension, the typical pensioner receives R3,559 per month.

The median is the middle number, with half the sample earning above it and the other half earning below it. The median pension increased by 2 percent from 2013 to 2014, far below inflation.

Taken as a group, those over 60 received R43bn from private pensions while income from government grants was R39bn. Those over 60 also received R25bn from paid work.

The government grant supports 69 percent of senior citizens. It pays only R1,155 per month to each individual. This is well below the average R5,722 private pension and explains why government grants contribute only 36 percent of the total income pool received by seniors collectively. Private pensions represent 40 percent of the total income pool received by those over 60 and earnings from work 24 percent.

There is little overlap between the government grant and private pensions. “On an individual basis, however we believe that this age group has an income from either government grants or private pensions,” states the report.

Looking at the ratio of pension assets to GDP, South Africa has one of the highest ratios. In 2012, with R2.7 trillion saved in pensions, the country had the 5th highest pension funds to GDP ratio in the world ahead of countries such as Finland, Canada, Denmark, Japan and France.

Yet South African pensioners are unable to replace their income when they stop working. The Bankserv data shows that the average pensioner’s disposable income is about 45 percent of the average salaried workers’ disposable income.

If one considers that some retirees do not earn any income at all and fall off the datasets, the replacement rate might be as low as 12 percent. This is according to Alex van den Heever, an academic at the Wits School of Governance.

The replacement rate is the proportion of a pension relative to earnings before retirement.

“South Africa’s private pensions system is, using objective criteria, the most inefficient in the world. For the level of assets and contributions, it delivers one of the lowest replacement rates for any comparative country,” van den Heever wrote in a response to e-mailed questions.

Consumers have to navigate savings products that they do not fully understand.

“The complexity of the system, compromised further by a structurally conflicted advice industry, makes consumers vulnerable to persistent and ongoing abuse – through hidden fees and penalties,” van den Heever added.