How preservation funds fit into the broader South African retirement landscape

Preservation funds can play a fundamental role in your overall retirement plan. The job landscape has changed over the years, and employees may find themselves moving between jobs more than was the case in the past.

Many South Africans may cash out their employer-sponsored pension or provident fund money instead of preserving it in a preservation fund and allowing it to potentially grow over time.

Cashing out may affect your final retirement outcomes with the loss of potential growth. By leaving your savings preserved, it can lead to much greater retirement outcomes.

Preservation funds should be the bridge between your pension or provident funds and your retirement years. In this article, we will look in more detail at the ins and outs of using a preservation fund and how this important vehicle fits into your overall retirement plan.

What exactly is a preservation fund?

A preservation fund is a long-term retirement savings product that allows you to continue to save for retirement when changing jobs. You are able to transfer your employer-sponsored pension or provident fund across to a preservation fund without triggering a tax event. When completing the relevant administration, you will need to ensure that your provident fund is transferred to a provident preservation fund and your pension fund is transferred to a pension preservation fund.

Growth within the fund is tax-free, thereby allowing for more of your returns to be reinvested and to grow over the long-term. Preservation funds do not allow for any further contributions, so for this reason, you would look to ensure that you carefully consider both your asset allocation and the fees that you are paying to maximise the potential growth of your preservation fund. Upon retirement (from age 55 in South Africa), your preservation fund will be transferred to either a life or living annuity, which will then provide you with an income during your retirement years.

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Preservation funds and the Two-Pot Retirement System

The Two-Pot Retirement System was introduced in South Africa by the National Treasury in September 2024. This system changed the way withdrawals are governed. Under the Two-Pot Retirement System, all savings are split between two pots, the ‘savings pot’ and ‘retirement pot’. One-third of your savings will go to the savings pot, and two-thirds will go to the retirement pot. All savings and contributions made prior to September 2024 will be part of what is termed the ‘vested pot’, which is governed by the old rules.

Withdrawals are permitted from the savings pot once per year for a minimum amount of R2,000. Withdrawals from the savings pot should be kept for emergencies only, and savings should rather be kept invested, if at all possible. Withdrawals will be taxed at your marginal tax rate, and there will also be an administration fee charged. The retirement pot capital will remain invested until retirement age, which is from age 55 in South Africa.

Contributions to a preservation fund are not permitted, but the savings component of the fund will grow at the same rate as the total fund. If your total fund grows by double the size, then you will see both the savings pot and the vested pot also grow by double the size. Please consult the latest FSCA guidance on the Two-Pot Retirement System.

The three main pillars of retirement savings

There are various products that you may wish to make use of as a part of your retirement plan. Let’s have a look at some of these options:

Employer-sponsored funds

Umbrella funds: You may be part of a group fund which has been set up by your employer

Pension or provident funds: Your company may have either a pension or a provident fund that you are part of.

Individual investments

Tax Free Savings Account: This long-term investment savings vehicle comes with several tax advantages, subject to the contribution limits in place.

Retirement Annuity: This retirement savings investment product offers attractive tax deductions for investors.

Post retirement

Living annuity: This investment product will provide you with an income during retirement while your savings remain invested. They also offer flexibility when it comes to your fund selection and drawdown rate.

Life annuity: This will also provide you with a retirement income while removing any market-related stress that may occur, as your income is guaranteed, regardless of market volatility.

Where preservation funds sit

If you find yourself changing jobs or moving to a new employer, you will have the option of either withdrawing the savings that you have in your employer-sponsored pension or provident fund or transferring these across to a preservation fund. Investing your capital in a preservation fund allows for these savings to be ‘preserved’ and potentially grow and compound over the long-term, eventually providing for your future retirement needs.

Within the broader retirement landscape, preservation funds serve as an important bridge between your working years and retirement. During career transitions, they help ensure continuity in your savings strategy. Without a preservation vehicle, retirement savings can become fragmented or reduced through early withdrawals, taxes and lost compounding opportunities.

A preservation fund also perfectly complements other retirement savings vehicles like retirement annuities, tax-free savings accounts and employer-sponsored funds. Your fund will keep your savings invested and aligned with your overall strategy. As such, it forms part of a larger, coordinated retirement plan, rather than operating in isolation.

Our 10X preservation fund focuses on low fees, excellent returns and diversification.

Asset allocation inside a preservation fund

Your asset allocation within your fund should be carefully considered, especially since you can no longer make contributions to the fund. Asset allocation plays the biggest role in the performance of your preservation fund, accounting for over 90% of returns, as seminal research from Brinson, Singer and Beebower shows.

Your asset allocation refers to the mix of different asset classes that your capital is invested in. This will usually be a mix of equities, bonds, real estate (property) and cash. You will structure your asset allocation by looking at factors such as your risk tolerance levels, investment timelines and long-term financial plan.

Preservation funds are governed by Regulation 28 of the Pension Funds Act, which stipulates the maximum amount of exposure permitted to equities and offshore investments. This is to help investors avoid poorly diversified portfolios. Current regulations state a maximum allowance of 75% in equities and 45% offshore.

Each of the asset classes displays different characteristics. Equities are generally the most volatile of the asset classes, while also being the most likely to produce the best returns in the long-term. As data suggests, equities have historically produced returns above inflation, by around 7% annually, over the long term (based on JSE All Share Index performance versus CPI from 1960-2020). It is important to remember that past performance does not guarantee future results.

Bonds will add some stability to a portfolio but also may generate lower returns. This is not to say that bonds will never outperform what’s expected, merely that they’re seen as a more conservative option. Real estate can be a good hedge against inflation while potentially generating competitive returns. Cash is likely to generate the lowest returns, while also being the most stable and liquid of the asset classes.

Diversifying across these different asset classes in accordance with your investor profile and long-term financial plan and goals will help you to balance risk versus reward in your portfolio. Including some offshore exposure may provide a hedge against any market instability in South Africa and potential depreciation of the Rand, while also allowing you to take advantage of opportunities available in the bigger international market.

At 10X, we offer a range of well-diversified funds that give you access to both local and offshore assets. These funds are carefully selected and cater to a range of different investor profiles, ensuring that there is a fund suitable to meet your unique needs. Please visit our funds page for the most up-to-date fund information. Fund information is correct as of the 16th of February 2026.

Fees in preservation funds

Fees can impact the growth of your fund in the long term. Fees should be even more of a consideration when it comes to preservation funds, as you are not able to contribute to your preservation fund, so you would instead aim to reinvest as much of your returns as possible and avoid these returns going towards covering your fees.

Let’s have a look at an example which highlights the effect of fees on your fund over the long-term. We will be comparing fees of 3% with fees of 1%.

Let’s assume the following factors for our example:

• Investment period of 30 years
• Investment of R500,000
• Return of 12% per annum
• An inflation rate of 6%

Example 1 (1% Fees): Real investment value is R1,992,890

Example 2 (3% Fees): Real investment value is R1,155,018

This example is for illustrative purposes and real results may vary. You can learn more about fees here. There are some typical fees that you may see charged. Let’s have a look at some of these fees:

Administration fees: These are the fees charged for the administration of the fund. This would be for tasks such as reporting, compliance and tax.

Advice fees: If you are using an advisor, they will charge for their advice and any other services. You can expect to see both an initial and an ongoing fee charged.

Management fees: These are the fees charged for the management and running of the fund.

The Effective Annual Cost (EAC) is a standardised measure that was introduced by ASISA in 2015. This metric allows you to see the total costs of having an investment over a one-year period of time. This information can then be used to compare and evaluate with other service providers. All factors being equal, a higher EAC would mean that less of your investment returns can be reinvested and potentially grow and compound over time, while a lower EAC may mean that more returns may be reinvested and allowed to potentially grow over the long term.

Of course, the EAC of an investment is just one factor to consider when comparing different service providers. 10X offers this useful calculator, which can be used to compare the EAC of your current provider with that of 10X. It is a free tool that is a part of our online suite of tools available to investors on our website. 10X ensures that fees charged are simple, transparent and easy for all investors to understand. The fees we charge on retirement products are usually less than 1%, depending on the amount invested and the product selected. Please visit our website for the most up-to-date product-specific information. Fees are correct as of 16 February 2026.

Common mistakes investors make with preservation funds

Let’s take a look at some common mistakes that investors make when it comes to their preservation fund:

1. Being too conservative, too early: While it may feel safer to reduce risk, being too conservative too early in your investment journey can have a major impact on long-term growth. If you still have many years before retirement, your preservation fund typically has time to recover from short-term market volatility. Remember that growth assets, such as equities, have historically delivered higher returns over long periods.
2. Not paying enough attention to fees: Fees can have a major impact on the growth of your investment in the long term and your final retirement outcomes. Even just a small difference in annual fees can compound into a notable reduction in your fund value over decades. As preservation funds don’t allow for further contributions, it’s important to keep fees as low as possible to maximise the growth of your fund.
3. Failing to review your portfolio: Over time, market movements can cause your portfolio’s asset allocation to move away from its intended structure. For example, strong equity performance may increase your exposure to risk beyond what you’re usually comfortable with. On the other hand, prolonged market declines may reduce growth exposure too far. And as your personal circumstances evolve (e.g. approaching retirement, changes in income needs, etc.), reviewing your fund can help you make sure it’s still aligned with your goals and broader retirement plan.

Preservation funds as the backbone of long-term retirement planning

A preservation fund should play a key role in your overall financial plan. It allows you to potentially continue to grow and compound the savings from your employer-sponsored pension or provident fund when changing jobs. This may then result in more favourable retirement outcomes in the long term. Investing for retirement should always be consistent and disciplined, while endeavouring to stick to your long-term financial plan and goals.

If you need help with setting up your preservation fund, please contact the helpful and experienced investment consultants at 10X, who will be happy to assist you, setting you on the right path for a successful retirement!