How to stay disciplined with your preservation fund after changing jobs

Changing jobs can be a disruptive and uncertain time, and this can increase the temptation to withdraw your retirement savings rather than invest them in a preservation fund. However, if you decide to use a preservation fund, it can help your retirement savings grow and compound over the long term, potentially improving your retirement outcomes.

This requires both discipline and a long-term investment approach, with a clear focus on your long-term financial goals and retirement plan. In this article, we will take a closer look at the importance of a disciplined approach to your preservation fund and the impact that this may have on your potential retirement outcomes.

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What is a preservation fund?

A preservation fund is a long-term retirement savings vehicle that allows you to transfer your savings from either an employer-sponsored provident or pension fund to a preservation fund when you are changing jobs. This does not trigger a tax event, as long as your pension fund is moved to a pension preservation fund or provident fund to a provident preservation fund.

Growth in your preservation fund is tax-free, allowing more of your returns to be reinvested and potentially compounded over time. Preservation funds do not allow for further contributions, so they should be carefully managed to focus on long-term growth. From age 55, you can transfer your preservation fund to either a life or a living annuity. This annuity will then provide you with income in retirement.

Why changing jobs can lead to poor financial decisions

Changing jobs can lead to poor financial decision-making. It can be a period of financial uncertainty and heightened stress, with emotions running high. There may also be a need to make lifestyle changes, which can increase the temptation to withdraw cash. All of this is understandable, but making emotional decisions about investments is a dangerous game.

You may feel the tendency to focus on short-term needs, pushing retirement and long-term thinking to the back burner due to the stress of the current moment. While this may provide you with some short-term relief, it may also negatively impact your long-term retirement outcomes. Emotional and knee-jerk decisions during periods of uncertainty can disrupt the potential long-term growth of your retirement savings.

Understandably, changing jobs can create anxiety around market volatility and investment performance. But investing is a long-term game, and becoming overly conservative may end up doing more harm than good.

Hence, the importance of discipline during career transition periods. By referring back to your long-term financial plan, retirement timelines and investment goals, you can avoid letting short-term uncertainty lead to knee-jerk decisions. A preservation fund is designed to help investors maintain long-term retirement discipline during these transitions and keep their retirement savings invested for the future.

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The hidden cost of cashing out your preservation fund

Cashing out your retirement savings when changing jobs can seem appealing in the short term, especially during periods of financial uncertainty. When you’re in the heat of the moment, it’s often easy to lose sight of the long-term ramifications of cashing out.

Let’s have a look at some of the potential costs of cashing out your pension or provident fund savings:

• Tax implications: If you decide to withdraw cash before age 55, you will be taxed according to the following tax tables, taken from the SARS website. Depending on the amount withdrawn, this can greatly reduce the amount you ultimately receive in cash.
• Loss of compound growth: You will also lose out on the potential compound growth that may occur if your funds are instead invested and allowed to continue to grow and compound over the long term. If your retirement savings remain invested, the capital will potentially continue to grow and compound over time.
• Reduced retirement savings: Withdrawing retirement savings today may leave you with much less capital for your retirement years. Replacing withdrawn retirement savings later in life can also be difficult, especially as preservation funds don’t allow for additional contributions.
• Interrupting long-term retirement discipline: Preservation funds are designed to help investors stay focused on retirement goals. Cashing out can interrupt this vision and make it more difficult to remain disciplined regarding the growth of your retirement savings

It’s important to always consider the effect that short-term decisions may have on the long-term and, eventually, your retirement outcomes. Staying disciplined during periods of transition can improve your financial security and retirement readiness over time.

The Two Pot Retirement System

The Two-Pot Retirement System was implemented by the National Treasury in September 2024. This new system governs how withdrawals from and contributions to preservation funds are now treated. The structure of the Two-Pot Retirement System is such that contributions are split between two pots. In addition to these two pots, you may have a ‘vested’ component that remains governed by the old rules.

One-third of contributions will go to the savings pot and two-thirds to the retirement pot. This won’t affect preservation funds, as they cannot accept any further contributions. However, the savings component of the preservation fund will grow at the same rate as the total fund. If the total fund grows by double its size, both the savings pot and the vested pot will also grow by double their size.

The savings pot allows for withdrawals according to the stipulated rules. You are able to withdraw once a year from your savings pot; the minimum withdrawal amount is R2,000. You will be taxed at your marginal tax rate, and there will also be an administration fee included. This refers to all funds invested prior to the Two-Pot System taking effect in September 2024. Please consult the latest FSCA guidance on the Two-Pot Retirement System.

Behavioural mistakes investors make after changing jobs

1. Withdrawing unnecessarily: It can be a common occurrence for investors to make unnecessary withdrawals instead of keeping funds invested for the long term. Funds should remain invested in order to grow and compound over the long term.
2. Becoming too conservative: Investors may fear short-term market volatility, and as a result, they may invest too conservatively - which may look like investing too heavily in cash, for example. Cash may struggle to beat inflation, and there may therefore be little growth in your portfolio over time.
3. Reacting emotionally to market volatility: It can be easy to react emotionally to market volatility, which may mean switching to more conservative funds instead of staying invested and allowing the market to recover.
4. Ignoring fees: Fees should be carefully reviewed to ensure that you are not paying high fees. High fees, when compounded over the long term, may impact the potential growth of your preservation fund.

The role of asset allocation in your preservation fund

Your asset allocation selection is crucial when it comes to the performance of your preservation fund. In fact, 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. When you select your asset allocation, you will consider equities, real estate, bonds and cash. Each of these asset classes has distinct properties. At 10X, we give you the freedom to choose from a range of carefully curated funds, each with a different mix of assets and geared towards different investor profiles.

Equities are the most volatile of the asset classes, while also likely to deliver the best long-term returns. 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 to 2020). Of course, past performance does not guarantee future results. Real estate will also produce some solid returns. Bonds may produce some lower returns, but they will add some stability to your portfolio. Despite being seen as a more conservative option, bonds may still outperform expectations. Cash is the most stable of the asset classes, but you will also likely see the lowest returns here.

If you diversify across the asset classes, you are more likely to be able to balance both your risk and reward as you move through the different economic cycles. You may also wish to further diversify offshore. This could provide a hedge against any local market instability and depreciation of the Rand. You will need to adhere to Regulation 28 of the Pension Funds Act, though. This puts a cap on the percentage of equities that you may invest in, as well as the percentage of your portfolio that may be invested offshore. Current regulations state that you may invest up to 75% in equities and 45% offshore. When you choose your asset allocation, you would want this to align with your investor profile and also your long-term retirement plan and goals. Your investor profile looks at your risk tolerance levels and your investment timelines.

At 10X, we offer a range of different funds that include a mix of different asset classes. Please visit our funds page for the most up-to-date fund information.

Why fees matter in a preservation fund

Fees can have a major impact on the potential growth of your preservation fund. The higher the fees are, the fewer returns you may have available to reinvest in your preservation fund to potentially compound and grow over time. Lower fees may instead mean that there are more returns to reinvest in order to potentially compound and grow your capital over the long term.

The Effective Annual Cost (EAC) is a standardised metric which was introduced by ASISA in 2015. This metric allows you to view the fees and costs that are associated with owning an investment product over a one-year period of time. This information can be useful in order to compare and evaluate different service providers. All factors being equal, you may find that a higher EAC means that there are fewer returns to be reinvested and allowed to compound over time. A lower EAC may result in there being more returns available to be reinvested and allowed to compound over the long term. The EAC of your investment would be just one factor to consider when evaluating service providers.

There are a few common fees that you may expect to see charged. Let’s have a look at some of these different kinds of fees:

• Administration fees: There will be fees that are charged for the administration tasks related to the fund. These are for tasks like compliance, reporting and tax.
• Advisor fees: If you have an advisor, they will charge fees for advice and services that they offer. There will usually be an initial and ongoing fee charged.
• Management fees: These are the fees that are charged for the running of the fund.

Let’s look at an example to illustrate the impact of fees on your funds. We will assume the following information for this example:

• Investment period of 30 years
• Investment of R150,000
• Return of 12% per annum
• An inflation rate of 6% Example 1 (1% Fees): Real investment value is approximately R598,000
• Example 2 (3% Fees): Real investment value is approximately R347,000

A small difference in fees can have a potential impact on the investment value of your preservation fund. This is especially evident when fees are compounded over the long term. This example is for illustrative purposes only, and actual results may vary. You can find out more about how fees impact retirement outcomes here.

At 10X, you can expect to find low, transparent and simple fees. There are no hidden costs. Please visit our website for the most up-to-date fee information. Fee information is correct as of 27 May 2026. Final thoughts on preservation fund discipline

A job change can result in emotional decision-making when it comes to your finances, as this is often a high-stress period of life. However, it is important to stay focused on your long-term financial plan and goals and remain disciplined when it comes to your retirement savings. A preservation fund is an excellent way to continue to save for your financial future.

If you lose sight of the long-term plan, this may impact your potential retirement outcomes. If you have any queries when it comes to any aspects of your preservation fund, get in touch with the helpful and experienced investment consultants at 10X.