Preservation funds for new freelancers: How to safeguard your retirement savings in a gig economy

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Over recent years, the South African job market has been evolving, but the role of preservation funds remains as critical as ever. With the onset of COVID-19 changing the way many of us work, plenty of people have moved away from more formal, full-time employment and towards freelance, contract and gig work.  

When moving away from formal employment, employees can transfer their employer-linked provident or pension fund across to a preservation fund, where savings can continue to grow. A preservation fund is a long-term retirement savings vehicle which allows you to ‘preserve’ your savings when changing jobs, and for workers transitioning to freelancing and gig work, this is incredibly important.  

10X is a leading, qualified and experienced financial services provider committed to low fees and superior returns. In this article, we will explore how those transitioning from full-time employment to freelancing and gig work can benefit from preservation funds. Additionally, we’ll provide key tips and strategies for safeguarding and managing your retirement savings in the long term.  

What is a preservation fund? 

A preservation fund is a retirement savings vehicle which allows you to continue with your retirement savings, which have previously been invested in an employer-linked provident or pension fund. This would be the case when you leave a particular job. For those transitioning to freelance or gig work, this is critical, as preservation funds allow your savings to continue growing, even after you’ve moved away from full-time employment. 

Unlike cashing out these savings, which stops investment growth and incurs tax, preservation funds allow for a straightforward, tax-free transfer to a provider who will invest on your behalf.  It’s important that a provident fund is transferred to a provident-preservation fund and a pension fund is transferred to a pension-preservation fund. Keep in mind that you are unable to add further contributions to preservation funds.  

Preservation funds are also governed by Regulation 28 of the Pension Funds Act, which puts a limit on the percentage of your preservation fund which you may invest offshore, as well as the percentage of your preservation fund that you may invest in equities. These regulations are to help protect you against poorly diversified portfolios. As per current rules (August 2025), you can invest 45% of your fund offshore and 75% in equities.  

Why preservation funds matter for self-employed individuals 

As a self-employed individual, you will not have an employee-linked pension or provident fund, and it is, therefore, important to take care of any retirement savings that you may have built up over the years. If you have benefited from a pension or provident fund while formally employed, before transitioning to freelance work, preservation funds allow you to protect these savings, where they can continue to grow and set you up for retirement.  

Making use of a preservation fund in order to preserve your retirement savings is the first step to securing a sustainable retirement. The next step is to actively manage and regularly review these savings to optimise asset allocation, minimise fees and maximise potential growth and returns. New gig workers and freelancers should see preservation funds as a central component of a long-term retirement strategy.  

As you no longer have an employer to contribute on your behalf, it becomes even more important for freelancers and gig workers to take personal responsibility for preserving and growing retirement capital. A preservation fund offers a practical and tax-efficient way to keep your savings working for you.  

Preservation fund asset allocation: Choosing the right mix for a variable income lifestyle 

Asset allocation is the mix of underlying assets in which your savings are invested. These assets are usually a mix of local equities, bonds, real estate (property) and cash, as well as offshore investments. As an investor with 10X, you can customise your underlying investment portfolio by choosing from a selection of carefully curated investment funds. With these funds, you can diversify across the asset classes and find what works best for you. 

You choose your fund according to your risk tolerance levels, investment goals and timelines. Equities usually generate the best returns over time, although they are the most volatile of the asset classes. Bonds and cash add stability to a portfolio but are likely to generate lower returns, and real estate can be a good hedge against inflation.   

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As an investor focused on the long term, it’s important to include some equity exposure in your portfolio. If we look at equities, we see that they 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); however, past performance does not guarantee future results.   

Diversifying across the asset classes allows for a potential balance between returns and stability. It allows you to take advantage of good market returns in certain asset classes while mitigating against losses which may occur in other asset classes. Including some offshore exposure in your portfolio also lets you take advantage of potential opportunities available in the international market. Of course, adhering to the Regulation 28 limits is imperative.   

10X has a range of carefully selected funds within the preservation fund wrapper. These funds are each suitable for different investor profiles. You can view these funds here, or if you’d like to discuss preservation funds further, feel free to reach out to the 10X investment consultants.  

Fees: The hidden risk for investors  

Many freelancers aren’t aware of the fees that they are being charged on their preservation fund. As an investor, it is important to regularly review the fees that you are being charged, as being informed can help you make a smart decision regarding which service provider to use. The typical fees you may see charged on your preservation fund are:  

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

• Advisor fees: These are the fees charged for the advice given by financial advisors. There might be both initial and ongoing fees. 

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

• Other fees: These may be fees such as early exit penalties, applicable to certain products. 

The Effective Annual Cost (EAC) of an investment refers to the total cost and fees associated with owning an investment product over a one-year period of time. It allows you to see all fees being charged, and then compare this with the costs associated with other service providers.  

All factors being equal, a higher EAC will have the effect of eroding returns, whereas a lower EAC may allow for more returns to be reinvested and allowed to potentially grow and compound over time. The EAC of an investment would be just one factor to consider when choosing between service providers.  

Higher fees may potentially diminish the growth of your capital over time, so ideally, you would look to minimise fees in order to allow for more returns to be reinvested and allowed to potentially grow over time. As an investor, it’s important to distinguish between fund performance and net investment returns. Fund performance reflects the total returns generated by the underlying investment fund, while net returns are what remains after deducting fees and factoring in inflation.  

For example, let’s consider a simple example of 1% in fees vs 3% in fees with an inflation rate of 6% to properly illustrate the importance of fees. Let’s say you invest R100,000 and the fund returns 12%, your investment value is now R112,000.  

Scenario 1 (1% in fees): With 1% fees, you need to pay R1,120. Your return is 10,880, which then needs to be adjusted for an inflation rate of 6%. The actual value of the money in real terms is, therefore, approximately R5,600. 

Scenario 2 (3% in fees): With 3% in fees, you need to pay R3,360. Your return is R8,640, which then needs to be adjusted for an inflation rate of 6%. The actual value of your money in real terms is, therefore, approximately R3,360.  

We can see how fees impact your net returns, and this is even more pronounced when fees are compounded over time. Note that the above example is for illustrative purposes only, and actual results may vary. You can learn more about how fees affect your preservation fund here.  

At 10X, we use a single management fee structure that decreases as your investment grows. 10X charges fees of 1% or less for most retirement products, depending on the product chosen and the amount invested. We do not charge fees for advice, adjusting your strategy or switching service providers. You won’t even have to pay any upfront costs, either. Please refer to our fee schedules for product-specific details. 

Index tracking vs active management 

Index tracking is when the asset makeup of a benchmark index is mimicked in an effort to obtain the same returns as the index. This strategy involves less research and analysis as well as fewer costs associated with the buying and selling of securities. As such, management fees are often less than with a more active investment strategy. In contrast, active funds rely on a fund manager’s investment decisions to try to achieve returns that exceed the benchmark. Unlike index funds, active funds seek to outperform rather than maintain consistency with their benchmark, but they may experience greater volatility in performance.  

Data from the SPIVA Scorecards suggests that index tracking may outperform active management most of the time. According to the latest SPIVA South Africa Scorecard (as of 31 December 2024), 60.84% of South African actively-managed equity funds underperformed the S&P South Africa DSW Capped Index over the ten-year period ending 31 December 2024. 

Freelancers can benefit from an index tracking investment strategy, as it may be more cost-effective, straightforward, and easier to understand. Since most freelancers and gig workers have a variable income that can often be unpredictable, keeping fees low is key to getting the most out of your preservation fund. 

10X makes use of an index tracking investment strategy alongside a more active approach to asset allocation. Focusing on long-term results for clients is a key part of our investment strategy, and our approach strikes a balance between rigid passive investing and hyperactive trading. You can learn more about our investment strategy here.  

Building a broader retirement plan around your preservation fund 

Your preservation fund should be one part of your retirement plan, offering long-term, stable security for the savings you’ve accumulated while employed at a full-time job, before you made the transition to freelancing or gig work.  

If you rely solely on a preservation fund, you may limit your financial flexibility and growth potential in retirement. As such, it is important to build a broader, more diversified retirement plan by using other savings and investment vehicles alongside your preservation fund.  

You may want to consider integrating a tax-free savings account into your retirement portfolio, as they allow for your investments to grow tax-free, and you can withdraw the savings at any time with no tax penalties, offering you liquidity and flexibility. You can learn more about tax-free savings accounts here.  

As a freelancer, you should also consider retirement annuities (RAs), which give you a chance to continue to save for retirement in a tax-efficient manner. RAs can also help enforce a disciplined savings habit. At 10X, you can find the right RA investment fund that lines up with your time horizons, risk profile and long-term goals. You can learn more about RAs here.  

Each of these vehicles has its benefits, and by using them alongside one another, you are able to maximise the potential benefits of each and build a well-balanced and successful retirement plan to ease you into the retirement years.  

Final thoughts on preservation funds for freelancers and gig workers 

Freelancers and contractors face a unique situation where they need to tackle retirement without the assistance of an employer. There is no company pension or provident fund to look after you in your retirement years. If you are lucky enough to have previously saved pension or provident fund savings, then these need to be carefully taken care of and placed in a preservation fund. This should be a main component of your retirement plan, which will serve you well in future years when managed efficiently.   

Focusing on low fees, an index tracking investment strategy, and the correct asset allocation to meet your investor profile and long-term retirement goals is vital. If at all possible, you should try and leave all funds invested and avoid withdrawals in order to maximise potential growth in the long term.  

At 10X, we help you protect and grow your pension or provident fund savings with a 10X Preservation Fund, where you enjoy the benefits of our proven superior returns, low fees, and transparent investment approach. Speak to one of our highly qualified investment consultants today to learn more.