Preservation Fund FAQs

10X Investment Preservation Fund Solutions

There are numerous benefits to utilising a preservation fund investment for long-term retirement planning and, at 10X Investments, we set ourselves apart as a leading option for managing your retirement savings by prioritising transparency, long-term strategic asset allocation, diverse investment portfolios, and consistently low fees – and we pride ourselves on offering an expert personal touch, as well. We hope this question-and-answer document will provide more insights into preservation investment offerings, how these funds work, and why they are the best choice for individuals wanting to safeguard their retirement savings during a period of employment transition.

What Are Preservation Funds?

A preservation fund is an investment product that safeguards accumulated retirement savings – so named because they allow you to preserve the value of your provident/pension contributions at the point at which you need to withdraw them from your previous employers’ fund, typically following a Section 14 transfer when changing employers. Depending on the source of the original retirement savings, this may take the form of a provident preservation fund or a pension preservation fund. They are typically used by people transitioning to a new job, who need to move their pension or provident funds away from their previous employer’s retirement scheme as a result.

What Are The Benefits Of A Preservation Fund?

Preserving offers a host of important benefits for investors, serving as a tax-efficient method to safeguard their retirement savings during job transitions. They ensure the continuation of compound savings growth, provide investment flexibility, and allow investors to maintain their financial security while approaching their retirement goals.

Preservation Fund Calculator

This is a simple financial tool designed by 10X Investments to help future investors estimate the projected value of their preserved savings over time. By inputting your age and the amount of money you wish to preserve into our preservation fund calculator, you are able to receive an estimate of how much you stand to grow your savings with 10X Investments, as well as a comparison between your savings potential with 10X compared to options that have higher fees and potentially more inconsistent performance.

Can You Withdraw Money From A Preservation Fund?

Under the two-pot retirement system, withdrawal rules for preservation funds have changed. Here's what you need to know:

There is a two-pot system for preservation funds which were opened after September 2024. Your preservation fund will be divided into two components – one third of capital goes into a "savings pot", with the remaining two-thirds going into a "retirement pot".

Savings pot withdrawals: You can make one withdrawal per tax year from your savings pot, subject to certain conditions.

Retirement pot: This portion remains preserved until retirement, except in specific circumstances like permanent disability.

Annual withdrawals: Unlike the previous system, where only one withdrawal was allowed before retirement, you can now access funds from your savings pot once annually if needed.

Minimum withdrawal: There's a minimum withdrawal amount of R2,000 from the savings pot.

Tax implications: Withdrawals from the savings pot will be taxed at your marginal tax rate.

Remember, while the new system provides more flexibility, it's still advisable to preserve your savings for retirement whenever possible.

For preservation funds that were opened prior to September 2024, capital is placed into a ‘vested pot’ from which you are able to make one withdrawal before retirement. This withdrawal can be any amount, with the first R27,500 being tax-free. From there, the rest of the withdrawal is taxed according to the SARS lump sum retirement benefit tax table. Furthermore, 10% of your vested pot to a maximum of R30,000 is placed into a savings pot, from which you get one annual withdrawal subject to a R2000 minimum and taxed at your marginal tax rate.

What Is The Difference Between a Preservation Fund and a Retirement Annuity?

A preservation fund and a retirement annuity (RA) are both long-term retirement savings vehicles in South Africa, but each serves different purposes and offers different levels of flexibility.

A preservation fund is typically used in cases where you leave an employer and want to preserve the retirement savings from a pension or provident fund. Preservation funds also do not allow additional contributions, so they serve as a holding vehicle, rather than a tool for ongoing saving. A preservation is structured as either a pension preservation fund or provident preservation fund.

A retirement annuity, on the other hand, is designed for active, ongoing retirement saving, and is a particularly good option for self-employed individuals or those who want to supplement employer retirement funds. You can contribute to a retirement annuity regularly or through lump sums, and contributions are tax-deductible within annual limits.

Preservation Fund Benefits

There are plenty of benefits to preservation funds. They are designed to protect your retirement savings when you switch jobs, which allows you to avoid the temptation to cash out and lose long-term growth. Instead, you can keep your savings invested and benefit from potential compounded returns over time, which can significantly improve retirement outcomes.

Preservation funds are also tax-efficient, as you do not pay tax when transferring from the employer pension or provident fund. Keep in mind that additional contributions can’t be made to a preservation fund. Preservation funds are also governed by strict legislation, which provides structure and protection, helping to ensure your savings are used for retirement.

Best Preservation Funds in South Africa

When you choose a preservation fund in South Africa, it’s important to consider factors such as investment performance, fees, flexibility and transparency. These all influence how much of your retirement savings can grow over time.

The 10X Preservation Fund is designed to combine low fees, index-based investing and broad diversification to help potentially maximise long-term growth potential. 10X prioritises transparent fee structures with no upfront or exit penalties, and provides a full online suite of free tools to use, such as a preservation fund calculator to showcase how lower costs can benefit your retirement outcome.

While the best preservation fund depends on your long term goals, risk tolerance and how long your savings will be invested, you can make an informed decision by comparing fees, underlying investment strategies and past performance across different providers.

Preserving Is Best With 10X Investments

Retirement planning is a central component of securing your financial future after you leave the working stage of your life. Whether you’re transitioning between jobs, facing unemployment, or readying for retirement, informed planning is important. At 10X Investments, we understand that planning your retirement can be a complex process with many factors to consider. That’s why we make sure to support our members at every step of the journey with retirement-focused expertise and transparency concerning their options.

By gaining an understanding of the benefits of a preservation fund and implementing key retirement planning strategies, you have the potential to secure a prosperous retirement. At 10X, we strive to help you harness this understanding. To this end, we have comprehensive resources and blog posts on our website to inform your decision to preserve your savings. When you opt for a 10X Investment Fund, you aren’t required to use a broker and will save money – you are able to deal with 10X directly – and for prospective members, our highly-experienced consultants are available to equip you with the important information you need to make an educated choice for your retirement savings.

Preserving your retirement savings in a 10X preservation fund enables you to maintain the compound growth of your investments while avoiding unnecessary tax implications until the point of withdrawal at retirement. Withdrawals from retirement savings accounts are often heavily taxed – by preserving these funds and avoiding withdrawals until they are absolutely necessary, you are effectively steering clear of tax implications. This comes with the added benefit of allowing your investment to compound efficiently.

With the 10X Preservation Fund offerings, transparency and thorough communication is maintained to ensure that clients retain control of their retirement savings. If you want to change your underlying investment portfolio, we will help you do that. Flexibility in investment options is one of the core features of the 10X Preservation Fund.

Setting up a preservation fund also helps you to avoid the tempting opportunity to withdraw early and miss out on the considerable benefits that come from leaving your preserved savings untouched. It’s important to remember that the benefit of a preservation fund is not only that those savings are protected from early withdrawal by yourself and from creditors in terms of section 37B of the Pension Funds Act. It's also about allowing those savings to compound over time. By preserving your retirement savings you can maximise the compound growth of your capital, which involves reinvesting your returns to generate greater potential income in future. When you decide to preserve your savings, you can ensure that this process goes ahead unhindered – providing substantial long-term benefits.

Allowing compound growth to work for you should be the cornerstone of your pension, provident or preservation fund investment strategy. At 10X Investments, we prefer a long-term strategic asset allocation approach that is designed to consistently beat inflation by a healthy margin - as the 10X Your Future Fund has done every year since inception – allowing you to leverage compound interest effectively.

We also believe that being well-diversified is the best way to manage risk and to deliver better long-term returns on your retirement savings. Our investment strategy is robust and has a proven track record. By opting to join 10X and benefiting from our range of preservation fund offerings, you are taking a significant step towards achieving a comfortable, sustainable retirement lifestyle. For the average working South African, the decision to preserve can make a huge difference in the later stages of their life.

Preservation Fund Withdrawal

While it is hugely beneficial to your savings and retirement outlook to not touch your preserved money before retirement, there may be financial reasons that leave you in need of withdrawing from your preserved savings early. However, before withdrawing early from your retirement fund, it’s important to weigh up a few factors and alternate investment options.

Under the new two-pot system, consider these factors before withdrawing from preservation funds:

Purpose: The savings component is intended for unexpected emergencies such as family emergencies, medical emergencies, urgent home repairs, legal issues and natural disasters.

Tax implications: Withdrawals from the savings component are taxed at your marginal rate.

Frequency: You can only make one withdrawal per tax year from the savings component.

Minimum amount: You must maintain a minimum balance of R2,000 in the savings pot, and any withdrawal has a R2000 minimum.

Impact on retirement: Any withdrawal reduces your retirement savings.

Accessibility: There may be circumstances where you cannot withdraw, such as if you have a pension-backed home loan, owe your employer damages, have a pending divorce order, or owe maintenance.

Always consult with a financial expert to understand the full implications of withdrawing from your retirement savings.

How Much Can I Withdraw From My Preservation Fund?

Under the new two-pot system, effective from 1 September 2024, the amount than can be withdrawn from preservation funds is determined by the following:

Savings component: You can withdraw once per tax year, provided there's a minimum balance of R2,000. There's no maximum limit on the withdrawal amount.

Retirement component: This remains inaccessible until retirement.

Vested component: Existing savings as of 1 September 2024 (also referred to as vested benefits, minus the amount transferred to the savings component) retain previous withdrawal rules, detailed above.

Remember, all withdrawals from the savings component are taxed at your marginal rate. Consider the long-term impact on your retirement savings before making any withdrawals.

How Many Times Can I Withdraw From A Preservation Fund?

The two-pot system, effective from 1 September 2024, changes withdrawal rules of preservation funds:

Savings component: You can make one withdrawal per tax year (March 1 to February 28/29), provided there's a minimum balance of R2,000.

Retirement component: This remains inaccessible until retirement, or at the age of 55.

Vested component: Existing savings retain previous fund withdrawal rules, detailed above.

Remember, while the system allows for more frequent access to the preserved savings component, it's designed for emergencies, not regular income. Carefully consider each withdrawal's impact on your long-term retirement savings.

Can I Borrow Money From My Preservation Fund?

Generally, you are only able to borrow money from your preserved savings if that is permitted by the rules stipulated by your fund, in the case of very specific purposes (such as paying off a property). 10X offers comprehensive support to members to aid in answering questions such as these. Simply get in touch with one of our consultants and we’d be happy to discuss your current situation.

Preservation Fund Rules

There are several regulations that apply in a 10X Investments fund for your preserved savings. These rules impact when you can access your preserved savings, as outlined earlier, and how much you can withdraw from your preserved savings both before and after your retirement. The two-pot retirement system, effective from 1 September 2024, introduces these key rules:

Three-component structure: Your fund may have a vested component (for existing savings pre-September 2024), but all funds will have a savings component, and a retirement component.

For the savings component, you are allowed one withdrawal per tax year, subject to a minimum balance of R2,000. There is no maximum withdrawal limit. Withdrawals are taxed at your marginal income tax rate. Withdrawals from the savings component are intended for emergencies, not lifestyle enhancements, or for those who have perhaps fallen on hard times and need the money.

The Retirement component remains preserved until retirement.

The Vested component retains the pre-2025 withdrawal rules (see below).

These new rules aim to balance preservation for retirement with limited pre-retirement access. Always consult with a financial expert to understand how these changes affect your specific situation.

Pre-2025 rules: If you had a preservation fund prior to September 2024, you are able to make one withdrawal before retirement from your ‘vested pot’. This withdrawal can be any amount, with the first R27,500 being tax-free. From there, the rest of the withdrawal is taxed according to the SARS lump sum retirement benefit tax table. Furthermore, 10% of your vested pot to a maximum of R30,000 is placed into a savings pot, from which you get one annual withdrawal subject to a R2000 minimum and taxed at your marginal tax rate.

Your preservation retirement fund will also have minimum and maximum contribution limits, with 10X’s having a R50,000 transfer minimum contribution. While you can invest the proceeds you have saved from different pension or provident lump sums into either one or many separate preservation funds, you are not able to split the proceeds from one pension or provident sum across multiple preservation funds. Contributions cannot be made to your money once preserved from other sources; the growth of your preserved savings occurs only from its net investment return (i.e. the performance of the underlying investment funds minus fees).

Preserved savings are tax-effective in that your investments do not incur capital gains tax or income tax as long as they remain invested in a preservation fund. The tax incentives included in preservation savings encourage individuals to avoid cashing their retirement early and rather opt to preserve their savings and leverage the power of compounding to grow their retirement savings instead.

Why Is Preserving Beneficial For My Retirement?

Deciding to preserve your savings is highly beneficial for planning your retirement for several reasons, most notably the contribution towards long-term financial security and peace of mind when it matters most. 10X Investments brings even more stability to your savings goals by having no upfront fees, advice fees, or exit fees, no penalties for changing your investment portfolio, and no hidden costs that might catch you off guard.

Preservation funds ensure tax efficiency. As previously mentioned, putting your pension savings in a preservation fund allows for considerable tax benefits that make them a favourable vehicle for retirement savings. The growth of investments within the fund is tax-free, thereby allowing your retirement savings to compound over time without any of it being lost to taxation.

Your money undergoes compound growth. As time passes towards your retirement, your investment returns increase, as all returns (minus fees) are reinvested, thus growing your capital base. Compound growth of your preserved savings can significantly increase the value of your retirement fund, so that by the time you retire, your investment may potentially be large enough to provide drawdowns that help you live comfortably through your retirement.

Your investment structure and asset allocation is flexible – you choose your own strategy. At 10X Investments, our preservation funds come with a range of investment options depending on your risk tolerance, investment objectives, and timeline towards retirement. 10X also offers a progressive fee structure, meaning the more you invest, the less you pay in fees.

Your savings remain portable. For individuals changing jobs, preservation funds allow you to maintain your hard-earned savings contributions to your pension fund even while changing employers. This ensures you are able to continue your retirement savings with the flexibility you need during a job transition. You are also able to move your preserved savings between different service providers once a year should you feel the need.

What is the Disadvantage of a Preservation Fund?

When it comes to your retirement, there are very few disadvantages to a preservation fund. The whole idea is to help you save your hard-earned money. While you’re allowed to withdraw some money before retirement, accessing money early will potentially reduce the value of long-term retirement outcomes. Additional contributions are also not allowed with a preservation fund, and your savings generally remain locked in until retirement age. If you choose to withdraw under the two-pot legislation, you will be taxed at your marginal tax rate.

Preservation Fund Contact Details

Curious to learn more about how to set yourself in good standing for your retirement? At 10X, we aim to make it easy for you to find the answers to your questions, by making the important information, legislation, and investment terms easily accessible. To learn more, simply visit our contact page and tell us a bit about yourself. A retirement expert will get back to you right away.

10X Investments is an authorised Financial Services Provider (FSP number 28250). The content herein is provided as general information and is not intended as nor does it constitute tax, legal, investment, or financial advice as defined by the Financial Advisory and Intermediary Services Act, 2002.