Preservation funds for late career changers: What to do in your 50s

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Job changes in your 50s are fairly common, and preservation funds give you the chance to keep growing your accumulated savings, even at this late stage in your career. If you have a pension or provident savings from an employer-sponsored fund, transferring these funds to a preservation fund when moving from your employer is a wise choice.  

This allows you to preserve your pension or provident fund savings, which may mean more potential compound growth of these savings over time. In this article, we will look at preservation funds in more detail and, in particular, how to make informed choices when making late career changes.   

What is a preservation fund? 

A preservation fund is a retirement savings vehicle that allows you to preserve your savings, which have been transferred from a pension or provident fund upon a job change, without triggering a tax event. This means that these savings can be transferred without the need to pay any tax.  

Any growth within a preservation fund is free from tax, allowing the full returns to be reinvested. Over time, this can improve compounding, helping your savings grow and better support you in retirement. You should ensure that the provident fund is being transferred to a provident-preservation fund and that the pension fund is being transferred to a pension-preservation fund. A preservation fund does not allow for further contributions, so you will need to rely on investment returns for your growth.  

From September 2024, new rules for retirement product withdrawals came into effect with the introduction of the Two Pot Retirement System. Under this system, contributions are split between a “savings pot” and a “retirement pot”.   

Preservation funds are not affected, as no further contributions can be made to the fund. A third category, known as the “vested pot”, applies to all contributions made before September 2024, which remain subject to the old rules. This means that you can still make one pre-retirement withdrawal from your vested pot.  

You aren’t allowed to access your retirement pot until retirement. Upon retirement, it will be used to purchase either a life or a living annuity. The savings pot allows for one withdrawal per year for a minimum amount of R2000. Keep in mind that withdrawals are taxed at your marginal tax rate and are also subject to an administration fee. Please consult the FSCA guidance document for the most up-to-date information on the Two-Pot Retirement System.  

Another key regulation surrounding preservation funds is Regulation 28 of the Pension Funds Act. This regulation puts a limit on the percentage of your retirement products that you can invest in equities as well as offshore. Regulation 28 is to help ensure that investors diversify their retirement products appropriately and help them avoid a poorly diversified portfolio. Current regulations state that you can invest 45% of your retirement money offshore and 75% of your retirement funds in equities.  

Why your 50s require a different preservation fund strategy 

As you enter your 50s, you may wish to select a slightly different preservation fund strategy upon changing jobs. As you get older and have less time on hand before retirement, your financial needs and lifestyle may not be the same as they once were. You may also be less risk-tolerant than you were a decade earlier, as you have less time for recovery after any possible capital losses.  

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Investment growth should still be an important goal, however, especially in a vehicle such as a preservation fund, where you are not adding any further contributions. It’s important to plan and manage your fund effectively, making sure you review factors such as asset allocation and fees.   

You will, therefore, need a solid financial plan and ensure that your preservation fund aligns with this plan. Regularly reviewing your strategy and making adjustments when necessary can help keep your preservation fund aligned with your goals and any changes in the market conditions. Staying proactive and informed can help you ensure that your preservation fund continues to support a comfortable and secure retirement. 

Choose the right provider  

When changing jobs late in your career and selecting (or reassessing) a preservation fund provider, it’s important to carefully review and compare the options that you have available to you. The right choice can make a huge difference in outcome, so always consider the following key factors:  

Cost transparency and competitiveness: Look for a provider with clear, easy-to-understand fee structures and a low Effective Annual Cost (EAC). The EAC is the total annual costs of owning an investment product, including management fees, administration fees, and any other associated costs. Even slight differences in fees can compound into large differences in your retirement balance over time.   

User-friendly access and functionality: A well-designed and easy-to-use platform can make it easier to manage your investment, monitor performance, and download statements whenever needed. The more convenient the platform, the easier it is for you to stay engaged with your retirement savings.   

Proven track record and credibility: Ideally, you should choose a provider with a strong reputation, a history of delivering consistent performance, and a reliable client service. Choosing a provider with a strong track record offers greater confidence that your savings are in capable hands.   

If your current provider is not meeting your expectations, you may wish to switch providers via a Section 14 transfer. 10X offers a transparent and low-fee preservation fund. Find out more here. 

Decide whether to withdraw or preserve  

It can be tempting to withdraw funds from your pension or provident fund when changing jobs, but there are a number of factors to keep in mind. If this is something that you are considering, take note of the following:

• Withdrawals are taxed according to the following tax tables (taken from the SARS website, 2025/2026 tax year).  

• If you do withdraw, you are losing out on the potential benefits of compound growth.
• You are not able to make any additional contributions to a preservation fund, so once you have withdrawn money, you are not able to add these savings back in again. 

If at all possible, it is the better option to preserve your funds and allow for the capital to potentially grow, so you can take advantage of compound growth over the long term. 

Choose an asset allocation that balances growth and stability  

A key part of your preservation fund’s growth is determined by its asset allocation. When looking at your asset allocation, you ideally want to ensure that your portfolio is well-diversified across the different asset classes; the goal being to outpace inflation in the long term. A diversified portfolio will also potentially take advantage of possible gains that might occur in some of the asset classes, while adding protection from any losses in other asset classes.   

Asset allocation is the mix of different asset classes in which your savings are invested. Generally, this includes equities, bonds, real estate (property), and cash, as well as offshore investments. Each of these different asset classes has different characteristics.   

As an investor, you can usually customise the underlying portfolio by choosing from a range of different funds, each with a different asset allocation, geared to different investor profiles. You select your fund according to factors such as your risk tolerance level and your investment timelines.   

Equities are generally the most volatile of the asset classes, but they are also the most likely to generate the best returns over 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). Of course, past performance does not guarantee future results.   

Bonds and cash both add stability to a portfolio, with cash being the most stable, but also being likely to generate the lowest returns. It’s important not to invest too heavily in cash, as you do still want to beat inflation. If you are a more risk-averse investor who is not comfortable with market volatility (as may be the case when changing careers in your 50s), you may wish to include a lower percentage of equities in your portfolio and instead include more bonds. If you are a more risk-tolerant investor, you may wish to include a higher percentage of equities in your portfolio. You can also look into diversifying your portfolio offshore, as this may provide a hedge against any political instability in the local market, which may then also have a knock-on effect on the Rand.   

10X offers a range of different investment funds that can be used within the preservation fund wrapper. Each of these funds has been carefully picked with a different investor profile in mind, so you can be sure to find a suitable fund that aligns with your risk tolerance levels and investment timelines. To see the funds which we have on offer, follow this link.  

Understand your options at retirement  

At retirement, which is from age 55 onwards in South Africa, you will have to choose what you would like to do with your preservation fund. Your savings must be used to purchase a retirement income product, which will be either a living annuity or a life annuity.  

A living annuity offers flexibility in terms of income options, and as an investor, you can adjust your income drawdown rate to cater for changing income needs or changes in inflation rates. A life annuity, on the other hand, will provide you with a fixed monthly income for the duration of your life, so there is no longevity risk or the risk of your capital running out.  

Under the Two-Pot Retirement System, your options at retirement depend on how your savings are allocated. You can withdraw the full balance of your savings pot in cash, or transfer it into your annuity. Your retirement pot must be used in its entirety to purchase an annuity. If you have a vested pot, you can access up to one-third in cash, and the remaining two-thirds must fund an annuity.  

Review and understand the importance of fees  

Fees can play an important role in the growth of your capital in the long term. You want to ensure that you regularly review your fees and use this information to compare with other service providers, so you can determine whether you are overpaying at your current provider. The common fees that you may see charged are: 

Administration fees: Administration fees will be charged for tasks related to administration, as the name suggests. These would be fees for reporting, tax, compliance, and similar. 

Management fees: Management fees are those fees that are charged for the management of the fund. 

Advisor fees: Advisor fees are the fees that you would see charged by an advisor for the guidance they provide and any additional services that they may offer. You may see both an initial and an ongoing fee charged.  

High fees may have the potential to reduce the returns that are available to be reinvested. Lower fees, on the other hand, may mean that there are more returns available to be reinvested and allowed to grow and potentially compound over time.  

Here is an example that illustrates the effect of fees of 1% vs fees of 3%. 

Let’s imagine you’re 55 years old and have plans of retiring at age 65. We'll compare fees of 1% to 3% to determine the real value of the investment after fees are deducted. Let’s assume the following:  

Initial investment: R1,000,000 

Investment period: 10 years  

Annual return: 12% 

Inflation: 6%  

Scenario 1 (1% in fees): After 10 years, the real investment value is R1,586,300 

Scenario 2 (3% in fees): After 10 years, the real investment value is R1,322,400  

Even in a shorter investment period of 10 years, the difference in fees of just 2% is equal to a difference of R263,900 in real investment value. This example is for illustrative purposes only, and actual results may vary. You can learn more about the importance of fees here.  

10X is able to offer a single low-fee structure of less than 1% for most products, as we understand the importance of low fees for maximising your retirement outcome. Please visit our website for the most up-to-date fee information.  

Avoid these common mistakes in your 50s  

Let’s have a look at a few common mistakes made by investors and which you should ideally avoid making: 

Early withdrawals: If possible, you should avoid withdrawals, as this can impact the growth of your preservation fund. Instead, leaving your savings invested will allow them to potentially grow and compound over time. Remember, you cannot make additional contributions.  

Investing too defensively too early: You always want to ensure that your portfolio is well-diversified and includes some equities with the aim of beating inflation. Remember to consider your appetite for risk and investment timelines when reviewing your asset allocation. 

Not updating beneficiaries: It’s important to review and update beneficiaries to ensure that these do reflect your wishes. If your beneficiaries are not updated, your savings may not be distributed according to your intentions. This can cause delays, disputes, and even financial issues for your loved ones.  

Failing to regularly review your strategy: As mentioned above, failing to review your strategy can be costly. You should always make sure that your preservation fund is aligned with your circumstances, risk tolerance, and market conditions. Reviewing your strategy is the best way to keep it in line with your retirement goals.  

Overlooking fees: Fees can significantly impact the growth of your preservation fund. Administration fees, advisor fees, management fees and more all reduce the amount available for investment and compounding. Even slight differences in fees can lead to large differences in your retirement balance over time.  

Final thoughts on preservation funds for late career changers 

When changing jobs in your 50s, you may consider investing in a preservation fund. This can be an important part of your overall financial plan, and it needs to be carefully managed to ensure it aligns with your financial goals.  

Maintaining your investment is the priority, but you should also pay close attention to asset allocation and fees. Regularly reviewing your strategy can help you maximise the potential of your fund and position yourself for a more secure retirement.  

For late career changers considering a preservation fund, don’t hesitate to get in touch with our experienced and well-informed investment consultants at 10X, who will be happy to assist you with any queries.