How to evaluate a Preservation Fund

A preservation fund is a retirement savings investment vehicle which you would make use of when changing jobs or when you are between jobs. It’s a vehicle in which you can “preserve” and grow your pension or provident savings funds so they will provide for your retirement. A lump sum amount is transferred from either your existing pension or provident fund.  

It’s important to properly evaluate a preservation fund, as this will be one the vehicles that provides for your retirement. You want to ensure that you are using a provider who is transparent with the fees that they charge, as management, performance, advice and other fees add up. You should also be confident that you are choosing a preservation fund with a good performance track record and that will be able to grow your retirement savings over the long term by generating higher returns for you. 

Another key factor to evaluate and analyse would be asset allocation, in other words, the mix of assets that the underlying funds are invested in. Also of importance is the investment strategy of the service provider; ask yourself, does that tie in with your financial goals and needs?  

To elaborate on the above point on fees: you should always be aware of the fees and costs involved with the preservation fund, so looking at the Effective Annual Cost (EAC) of the investment is crucial. Did you know a 0.5% increase in fees can cost you 20% of your money in retirement? In this article, we discuss how to evaluate a preservation fund to determine what’s right for you.  

Understanding asset allocation in a preservation fund  

Asset allocation refers to the mix of different asset classes that are found in a particular fund. You can typically expect to find assets such as equities, bonds, real estate and cash, both offshore and local, in a fund. The particular asset allocation of a fund determines the risk-return profile of the fund. Growth assets, such as equities and real estate, have been shown to produce higher returns over the long term, but they are also often the most volatile of the asset classes. These are best suited for long-term investors.  

When choosing your fund selection, having a diversified asset allocation is important. This allows you to mitigate the risks in some asset classes and take advantage of higher returns in other asset classes whilst balancing growth and stability. It’s also a good idea to include some offshore exposure in your portfolio. Therefore, hedging against local market volatility and currency depreciation whilst also gaining from any positive trends in the global market.  

At 10x, the approach to asset allocation is strategically focused on long term returns and driving the right outcome for clients as they move towards retirement. Asset allocation has been shown to be a key indicator of the success of a particular fund.  

You’ll need to make sure that there is the correct mix of growth and defensive assets in the fund as well as including some local and offshore exposure, based on your financial needs, risk tolerance, and time horizon. This asset allocation should also be regularly reviewed and tweaked according to changing market conditions. A few of the 10x funds that are designed to meet the various needs of the majority of investors over the course of their lifetimes include:  

(Please note: fund details correct as of 31 March 2025) 

10x Your Future Fund: The Your Future Fund is 10x’s flagship offering, created to deliver cost-effective exposure to a broad range of local and international asset classes. The fund is best suited to investors seeking long-term capital growth to build wealth and, therefore, has higher allocation to growth assets like equities and property. Fund exposure sits at 64.2% local and 35.8% offshore exposure. Asset allocation is as follows: SA Equity (33.9%), International Equity (24.5%), SA Inflation Linked Bonds (14.1%), SA Nominal Bonds (7%), SA Money Market (5.8%), International Money Market (5.5%), SA Property (3.4%), International Nominal Bonds (3.1%), and International Inflation Linked Bonds (2.7%).  

10x Income Fund: The 10x Income Fund is set up to give investors a high level of income and long-term capital stability via cost-effective exposure to a wide range of local and international interest-bearing assets. The recommended time horizon is three years or longer, as returns may fluctuate in the short term. The fund pays out income on a monthly basis and provides a regular stream of returns for investors. Fund exposure is set at 89.2% local and 10.8% offshore. Asset allocation is as follows: SA Inflation-Linked Bonds (41.8%), SA Nominal Bonds (35.5%), SA Money Market (12%), and International Bonds (10.8%).   

10x Moderate Fund: The 10x Moderate Fund is designed for investors looking for capital growth with a lower level of volatility compared to a high equity portfolio over the medium to long term. With a higher allocation to growth assets like shares and property, the recommended time horizon is three years or longer, as short-term returns will likely be more volatile. The fund has a lower risk than a pure equity fund, with the risk higher in periods shorter than a year and lower in periods longer than three years. Fund exposure is 69.6% local and 30.4% offshore. Asset allocation is as follows: SA Equity (28.4%), SA Inflation Linked Bonds (21.6%), International Equity (19.6%), SA Nominal Bonds (11.7%), SA Money Market (5%), International Money Market (4.9%), International Nominal Bonds (3%), SA Property (2.9%), and International Inflation Linked Bonds (2.9%).   

10x Defensive Fund: The Defensive Fund is particularly well-suited to investors who want a steady level of income with capital growth at a low volatility over the medium term, achieved via cost-effective exposure to both local and international asset classes. The portfolio has a higher allocation to defensive assets such as bonds and cash as opposed to growth assets like shares and property, and the recommended time horizon is one to three years and longer. Periods shorter than one year will likely see more volatile returns. Fund exposure is 75.3% local and 24.7% offshore. The portfolio’s asset allocation is as follows: SA Inflation-Linked Bonds (30.6%), SA Equity (17.9%), SA Nominal Bonds (14.7%), International Equity (13.8%), SA Money Market (10.3%), International Money Market (3.9%), International Nominal-Bonds (3.8%), International Inflation-Linked Bonds (3.2%), and SA Property (1.7%). 

The costs involved with actual investment management should also be kept low. If a service provider makes use of index tracking, this can significantly reduce the costs involved. Active management incurs more costs due to the buying and selling of stocks (trading), research and supporting services, and this increases the overall costs involved.  

10x makes use of index tracking, which helps to keep fees lower. We also offer well-diversified funds, aim for superior returns and provide an excellent level of service via our investment consultants, who are always available at no cost to discuss any queries or questions that you may have. Here’s more about the 10x Preservation Fund. 

Fees and Effective Annual Cost (EAC): The hidden destroyer of retirement wealth  

There are several different fees which you may see applied to your preservation fund. Understanding the different fees being charged is key to making a smart decision regarding preservation funds. These fees include management fees, administration fees and advisor fees, which we have briefly summed up below.  

Management fees: This refers to the fees charged for the management of the fund by a fund manager. 

Administration fees: These are the fees associated with the administration of the fund - for example, reporting and tax activities related to the fund. 

Advisor fees: These are the fees charged by an advisor for advice given. There could be both an initial and an annual fee charged. 

High fees can have a negative impact on your capital, especially when compounded over the long term. Many actively managed funds charge a high total fee of 2-3% per annum, and while this may seem insignificant at first, when these are compounded over many years, it can have a substantially negative effect on your retirement savings. This is even more crucial for preservation funds, where you are not adding any further contributions, so you are relying on good investment returns, and the last thing you want is for your returns to be diminished by unnecessarily high fees.    

It is always a good idea to be aware of the fees involved with your investment. 10x charges low fees of less than 1%, which allows your returns to be invested and your retirement savings to compound and grow over time. 

Effective Annual Cost (EAC) was introduced in 2015 by ASISA. The EAC provides you with a comprehensive list of all the fees and costs associated with an investment. You can request this from your current service provider and you can then use this information to compare your preservation fund’s fees and costs against other service providers. You want to ensure that the total EAC you are paying is as low as possible, as a high EAC will erode your returns and your total retirement savings over time. Here is a useful link to the EAC calculator. 

Investment performance and risk management  

The past performance of an investment does not guarantee future results, but it does give us some insight into potential returns. We often compare returns to that of inflation, which we ideally want to outperform by a decent margin to ensure that our preservation fund is not losing value over time. We could also compare investment returns to a specific market index, like the S & P 500, in order to gauge its performance and returns over time.  

You’ll need to balance the risks and rewards associated with your funds. The amount of risk you should take as an investor is usually linked to the time horizons you have available. The longer the time horizon you have for your retirement, the greater risk you may wish to take to pursue greater returns. You can also research how a particular fund has performed during times of volatility or market downturns.

Usually, a fund which is more heavily invested in equities will be more volatile in economic downturns, but it is also the most likely asset class to outperform inflation by a healthy margin. On the other hand, a fund that includes a higher percentage of bonds may be more stable during these volatile times. Overall, it is important to remember that an investor should take a long-term view and try to avoid any knee-jerk or emotional reactions when it comes to investment decisions.  

Investment management transparency and governance 

Transparency in financial management is important, because as an investor, you should expect to understand everything that is happening to your money! This could take the form of regular and clear reporting detailing the fund’s performance, quarterly investment webinars, or other regular correspondence from your provider. You should also have access to clear and transparent information regarding the fees and costs that you are paying. You shouldn’t have to fight through layers of paper and opaque definitions to know whether your money is working for you or not. 

Preservation Fund accessibility and flexibility 

You should also consider the accessibility and flexibility of the preservation fund. In terms of accessibility, preservation funds are now subject to the rules of the Two Pot Retirement System, which was implemented in September 2024. Prior to this, you would be eligible for one partial or full withdrawal before retirement.  Now, withdrawals are allowed from the savings pot once per year for a minimum amount of R2000, providing more flexibility. These withdrawals will be taxed at your marginal tax rate – which is quite a loss, when you consider what that money would have done for you if left to compound over time.  

The rules prior to September 2024 will still apply to the vested pot. Even though you now have some access to previously unavailable funds, it is still a good idea to try and keep the funds invested so they can grow and provide for you during your retirement years.  

The retirement pot needs to remain invested until retirement, which is currently set at age 55 in South Africa. Preservation funds do not receive contributions but the savings component of the preservation fund will instead grow at the same rate as the total fund. If the total fund grows by three times the size, then you can expect both the savings pot and the vested pot to also grow by three times the size. 

Another key consideration is whether or not the service provider provides easy online access, allowing you to view and track the performance of your preservation fund. 10x has a digital platform that is intuitive to use and allows you to easily track and manage your investment’s performance. 

You can transfer to a different service provider once per year if you are not happy with your current provider. This handy cost comparison tool allows you to compare preservation funds with a 10X preservation fund so you can see the difference in performance and fees, giving you the resources needed to make a choice as to what would be the best preservation fund for you. 

Final thoughts on preservation funds 

Some of the key factors to look at when evaluating a preservation fund include ensuring there is a good mix of the different asset classes (equities, bonds, real estate and cash) and that the portfolio is well-diversified to target a good balance between growth and stability. Additionally, make sure that fees being paid are on the lower end of the spectrum - such as the fees found at 10x - to reduce long-term costs. You should also be sure to choose a service provider who is transparent with their offerings and fees charged, making sure that the provider also has good governance and compliance in place 

By evaluating the preservation funds on offer against these criteria, you can get a good idea of the right preservation fund to meet your financial needs and situation. Making use of other online tools on hand, such as the EAC calculator, will further help you evaluate and compare fees, charges and the like. 10x’s website has a wealth of free resources that are available for your use here.  

By choosing the right preservation fund for you as an investor, you can ensure that you are setting yourself on the right track for retirement so you can feel financially secure while pursuing long-term growth in your capital. To learn more, speak to 10x today!