Your Preservation Fund Close to Retirement: How to Prepare for the Next Step

• A preservation fund can help protect retirement savings after leaving an employer, but the years before retirement are important for reviewing your asset allocation, fund selection, risk level and long-term retirement goals.
• As you approach retirement, you must understand your annuity options, Two-Pot components, lump-sum choices, and the tax implications of moving from preservation into retirement income.
• Fees, fund performance and available online tools should form part of your retirement planning process, as these can affect your final retirement outcomes and help you make more informed decisions before retiring.

A preservation fund can play an important role in your retirement plan, so it’s worth considering your fund and next steps as you approach retirement. The decisions you make in the years leading up to retirement can affect your retirement outcomes and the income you have available during retirement. In this article, we’ll review fund selection, asset allocation, fees, your timeline to retirement, risk, the Two-Pot Retirement System, annuity options, and the support available from 10X.

What is a preservation fund?

A preservation fund is a long-term retirement savings vehicle that allows you to preserve your savings when changing jobs. These savings would previously have been saved in an employer-sponsored provident or pension fund. There will be no tax payable as long as you transfer into the correct type of fund (your pension fund must be transferred to a pension preservation fund, whereas a provident fund should be transferred to a provident preservation fund). All growth within the preservation fund will also not be taxed. Note that a preservation fund does not allow for any further contributions, meaning that the invested capital needs to be carefully managed in order to see potential growth over time.

Why the years before retirement matter

The last few years before retirement may require a change in thinking, as you will now need to consider how your preservation fund will provide for you in retirement. You should generally review your fund to ensure it still matches your risk tolerance, the time you have until retirement, and your long-term financial plan and goals. You want to carefully manage your fund selection, as going too aggressive with your fund selection too close to retirement may be risky if there is a market downturn.

On the other hand, being too conservative may impact the growth of your capital. This is also a good time to think about how your preservation fund may eventually translate into retirement income. Your investment choices in the years before retirement can affect the capital available when you move into the next phase, whether that involves a living annuity, life annuity or another retirement income option. Reviewing your position early gives you time to make any necessary adjustments before retirement, rather than making rushed decisions when you are ready to retire.

Check whether your asset allocation matches this stage of life

Your ideal asset allocation may change over time as you move through the life stages, so it is important to review this to ensure it still aligns with where you are. Your asset allocation is the mix of the different asset classes that your funds are invested in. This will depend on factors such as your risk tolerance level, investment time horizons and your long-term financial plan and goals. This research helps to highlight the importance of asset allocation selection.

Let’s have a look at some of the usual asset classes:

Equities are usually in a portfolio to provide potential long-term capital growth and returns that beat inflation. Equities will give you exposure to companies and economic growth, but this may also bring periods of market decline. Values may be especially volatile over shorter periods. Bearing this in mind, equities may be more suited to your portfolio if you are comfortable with volatility and have a longer time horizon.

Bonds are usually less volatile than equities, but they may still come with some risk. They are generally more conservative, but they still have the potential to outperform expectations. Bonds may add stability, income, and diversification to your portfolio. Bond values may be affected by factors such as changes in interest rates, inflation expectations and the ability of the issuer to repay its debt.

Real estate may be a good hedge against inflation. Along with this, it also provides exposure to real assets and economic activity, whilst also generating income through rentals and distributions. It may provide long-term growth in your portfolio. However, listed property can be volatile. It may be affected by changes in the property market, interest rates, economic conditions and occupancy levels.

Cash is thought to be the most liquid and stable of the asset classes. It is usually less volatile than equities or real estate. Cash returns may not keep up with inflation over long periods. This may result in reduced purchasing power.

Retirement products such as preservation funds are subject to Regulation 28 of the Pension Funds Act. This places a limit on the exposure permitted in both equities and offshore. Current regulations allow up to 75% exposure to equities and 45% offshore. These rules are intended to help investors avoid a poorly diversified portfolio.

At 10X, we can offer you a range of funds that are well-diversified and Regulation 28-compliant. Please visit our funds page to find out more.

Understand the 10X Preservation Fund options

These are a few of the 10X funds on offer to you as a preservation fund investor with 10X. Note that returns are correct as of September 2026.

10X Moderate Fund

The 10X Moderate Fund is a multi-asset, medium-equity fund. The fund holds a higher percentage of growth assets than defensive assets. Exposure to equities is still lower than that of a high-equity fund.

The fund is well-suited to investors seeking capital growth but with less volatility than you might expect with a high-equity portfolio. The fund includes both local and offshore investments. It is intended for investors with a time horizon of around three years or longer.

Fund returns (all returns greater than 12 months are annualised)

Source: Fund Fact Sheet

10X Defensive Fund

The 10X Defensive Fund is a multi-asset, low-equity fund that holds a larger proportion of defensive assets compared to growth assets.

The fund is suited to more cautious investors who are looking for stability and income, along with capital growth. The fund may also suit investors with a shorter investment horizon or a low tolerance for market volatility. An investment period of between one and three years or longer is generally recommended.

Fund returns (all returns greater than 12 months are annualised)

10X Your Future Fund

This is one of our flagship funds. It is a multi-asset, high-equity fund with a higher percentage allocated to growth assets like equities and property. The fund also includes some exposure to local and international markets.

The fund is best suited to investors with an investment horizon of 5 years or more as well as those who are comfortable with short-term market volatility. The fund is designed for investors seeking capital growth over the long term.

Fund returns (all returns greater than 12 months are annualised)

10X Income Fund

The 10X Income Fund mainly includes a diversified range of local and international interest-bearing assets. The aim of this fund is to provide investors with a high level of income whilst maintaining long-term capital stability.

The fund is best suited to investors who are looking for income and capital stability rather than aggressive capital growth. The fund is aimed at investors with an investment horizon of at least three years. Values and returns may still fluctuate.

Fund returns (all returns greater than 12 months are annualised)

10X Money Market Fund

The 10X Money Market Fund is the most conservative of the fund options. It has the objective of generating interest income, preserving capital and providing liquidity. The fund is best suited to investors with a very low tolerance for volatility or those who need stability in the short term.

Fund returns (all returns greater than 12 months are annualised)

Think about the move from preservation to retirement income and the tax involved

From age 55, you will have the option to retire from your preservation fund and choose an annuity of your choice. This will be either a life annuity or a living annuity. A life annuity is a product purchased from an insurance company that provides you with a guaranteed income in retirement. Any risk usually lies with the insurance company, with less flexibility offered to you as an investor.

A living annuity is an investment product from which you can draw income whilst the remaining capital is invested in the market. A living annuity offers flexibility, but with this comes the responsibility of managing it to help ensure the sustainability of your capital through your retirement years.

Check your Two-Pot components before retirement

As a preservation fund investor, you would also want to understand how the Two-Pot Retirement System works. This system started in South Africa on 1 September 2024 and affects both contributions and withdrawals from retirement products. Preservation funds do not, however, allow for any further contributions. There are now three components, namely:

Savings component: This component allows you limited access before retirement. One withdrawal is generally allowed each tax year. This will need to be at least R2,000. You will be charged tax at your marginal income tax rate, and there will also be an administrative charge.

Retirement component: The retirement component should remain invested until retirement and will usually be used for an annuity in order to provide you with an income for retirement.

Vested component: The vested component is for all savings prior to 1 September 2024. The old rules will apply to this component.

Please check the latest FSCA guidance for the most up-to-date information regarding the Two-Pot Retirement System.

Understand your lump-sum options at retirement

From age 55, you may have the option to retire from your preservation fund and decide how the different components of your retirement savings should be treated. Your options will depend on the component involved and the rules that apply to your specific preservation fund.

Your savings component can generally be taken in cash at retirement, although you may also choose to use this money to help purchase a life annuity or living annuity. This can be useful if you would prefer to increase the amount available to provide you with retirement income.

Your retirement component must generally be used to purchase a life annuity or a living annuity. This means that this portion is intended to provide you with income during retirement, rather than being taken as a lump-sum cash payment.

Your vested component is governed by the rules that applied before the implementation of the Two-Pot Retirement System. Depending on the type of preservation fund and the rules that apply, you may be able to take a portion in cash at retirement, with the remaining amount used to purchase a life annuity or living annuity. Because the rules can vary depending on your preservation fund and its components, it is important to review your options carefully before making a decision. You should also consider the tax implications of taking a lump sum, as well as how much income you may need from an annuity during retirement.

Review fees before moving into the next phase

It’s important to review fees to ensure they are reasonable. High fees may have the effect of reducing the returns that you have available to reinvest. The effect of fees may be even more crucial for preservation funds, since you are not making any additional contributions. If you would like to find out more about the effect of fees, this article covering the math behind the impact is helpful. Let’s look at an example to help highlight the effect that fees may have. We will assume the following information:

• Starting capital: R750 000
• Investment period: 20 years
• Inflation: 5% annually
• Gross annual return: 10%
• No withdrawals

Scenario 1 - 1% fees: The preservation fund would grow to an inflation-adjusted value of approximately R1.6 million after 20 years.

Scenario 2 - 3% fees: The preservation fund would grow to an inflation-adjusted value of approximately R1 million after 20 years.

Just a small difference in fees can lead to major differences in retirement outcomes. This example is for illustrative purposes and real results may vary. Here are some important terms that you may see on your investment statement:

• TER (Total Expense Ratio): Ongoing expenses within an investment fund, calculated according to the applicable standard. (A way to compare the operating costs of similar funds, but it is not the final cost)
• TIC (Total Investment Charge): The total investment charge, which combines the TER with transaction costs within the fund. (A way to compare the full cost of the investment portfolio itself)
• EAC (Effective Annual Cost): An annualised estimate of the impact of product, investment management advice, administration fees, and all other applicable charges.

The Effective Annual Cost is a standardised way to understand the full cost of holding an investment over a one-year period of time. It was introduced by ASISA in 2015. The EAC is the various charges linked to an investment over a one-year period of time. It is displayed as a percentage value, allowing you to compare costs between different providers more easily.

Assuming all other factors are equal, a lower EAC may mean that more of your money remains invested and available to potentially earn returns over time. A higher EAC may result in greater pressure on net returns as fees compound over time. Costs should not be considered in isolation, as other factors like investment strategy, risk and service also play an important role. However, fees can play an important role in your potential retirement outcomes. Here are some of the typical fees you may see charged:

• Administration fees: There will be fees associated with the administration tasks like reporting, compliance and more.
• Advisor fees: An advisor will charge for their advisory services. There may be an initial and an ongoing fee charged.
• Management fees: These are the fees charged for the running of the fund.

The 10X fees are kept low, transparent, and easy to understand. To find out more about our preservation fund fees, please visit our preservation fund page.

How 10X can support you close to retirement

We offer a variety of different free online tools on our 10X website. These tools can be useful for you to use before making any decisions regarding your retirement or your preservation fund. Some of the tools you may like to try out are as follows: EAC Calculator, Preservation Fund Calculator or the Living Annuity Calculator.

Along with our range of online tools available to help support you as you near retirement, you will also have our 10X investment consultants on call for questions at no additional cost. These experienced investment consultants can be a great help in evaluating your options as you approach your retirement years. We offer an index-based investment strategy with a more active approach to asset allocation. Our fund selection gives you access to a diverse range of asset classes, while matching your investor profile and long-term retirement goals. Our transparent, simple, low-cost fee structure may also leave more of your returns available to reinvest and grow over time.