The Preservation Fund metric you’re not watching could cost you R750,000 or more in retirement
25 March 2025
In South Africa, when leaving your job due to resignation, retrenchment, or dismissal, one (potentially, very good) option for managing your retirement savings is transferring them to a preservation fund. This should allow for capital growth in a tax-efficient manner while maintaining the integrity of your retirement savings. But, many South Africans have preservation funds sitting with providers they chose years ago, often during a hectic job transition. So, how do you know if your preservation fund is actually performing, and providing for your retirement the way you expect it to?

If you’re wondering "Is my current preservation fund provider delivering real value, or am I leaving money on the table?" don’t worry. This article will discuss the core features of preservation funds and several critical performance indicators that determine whether your preservation fund is truly working hard enough for your retirement. Feel free to skip the following overview section if you want to get to the nitty gritty.
Why choose a Preservation Fund in the first place?
Here are some key benefits of choosing the right preservation fund to safeguard your retirement savings. If you’re not sure you’re getting these benefits with your current preservation fund, it might be time to talk to a preservation fund expert.
Long-term growth potential: With tax-free growth and restricted early access, your savings remain invested, potentially helping to build a substantial retirement fund. We’ll talk more about measuring your preservation fund’s performance further down.
Flexibility in service providers: Not getting what you need from your provider? You can transfer your preservation fund between service providers, subject to Section 14 of the Pension Funds Act, at no charge to you. Moving your pension into a preservation fund is also tax-neutral since it remains within the retirement savings ecosystem.
Competitive fees: Preservation funds, especially those on direct investment platforms such as 10X Investments, provide transparent fee structures with no costs to set up the investment.
One pre-retirement withdrawal: One significant advantage is the ability to make one full or partial withdrawal before turning 55. However, remember that withdrawals are taxed according to the withdrawal tax table.
Tax efficiency: As an approved retirement fund, preservation funds are exempt from local dividend tax and tax on interest. Additionally, switching between unit trusts within your fund does not trigger capital gains tax.
Customisable Portfolio: If invested through a direct platform, you can select funds from a range of portfolios within the limits set by Regulation 28 of the Pension Funds Act.
One-third lump sum withdrawal at retirement: Up to one-third of the fund can be withdrawn at retirement, offering liquidity for settling debts or funding major expenses. Unlike pre-retirement withdrawals, the first R500,000 of this amount is tax-free.
Excluded from estate duties: Assets in a preservation fund fall outside your estate, exempting them from estate duties and executor’s fees.
Creditor protection: Funds in a preservation fund are safeguarded from creditors under Section 37B of the Pension Funds Act, with exceptions for debts owed to SARS and amounts due under the Divorce and Maintenance Acts.
No mandatory retirement age: Investors are not required to retire from their preservation fund when they formally retire from employment, allowing flexibility based on their financial needs.
Guaranteed annuity income at retirement: At retirement, at least two-thirds of your preservation fund must be used to purchase an annuity to ensure financial security.
Ok let’s talk returns (of the long-term, consistent variety)
While most people focus solely on recent returns, this approach can be misleading. A fund that's topping the charts one year might not be so good the next. This is the nature of the beast.
What really matters? Consistent net returns (i.e. returns after all fees) over periods of 5, 10, or even 15 years compared to relevant market benchmarks.
Short-term performance can be driven by luck, but long-term, consistent returns usually indicate a sound investment strategy that can weather different market cycles.
This consistency is especially important for preservation funds, which typically have investment horizons spanning decades rather than years. Here’s a great example.
Warning sign: If your provider frequently changes investment strategies or fund managers, or if you’re hearing about their ‘fund of the month’, they may be focusing more on marketing than on delivering consistent long-term performance.

Total fee impact (aka one of the most reliable predictors of future performance)
Many investors underestimate just how significantly fees can erode their retirement savings over time. Fees are one of the most reliable predictors of your future returns - because while market performance varies, fees are a certainty.
What really matters: The Effective Annual Cost (EAC) of your preservation fund, which includes ALL fees:
- Investment management fees
- Administration fees
- Platform fees
- Advice fees (if applicable)
Let's look at a concrete example:
(For the purposes of the example below, we’re using an ‘all other things being equal’ methodology, whereas in reality fees, performance and inflation could all vary):
If we assume a gross return of inflation (4.5%) plus 6.5% before fees over 15 years on a R750,000 preservation fund:
- At a 3% annual fee: You'd have approximately R2.38 million at retirement
- At a 1% annual fee: You'd have approximately R3.13 million at retirement
That's a difference of over R750,000, simply from paying 2% less in fees each year! This demonstrates how even seemingly small differences in fees can compound dramatically over time.
Warning sign: If your provider makes it difficult to find a comprehensive breakdown of all fees, or if fees are scattered across different documents, the true impact of the fees you’re paying probably isn’t clear to you.
10X's EAC Calculator can help you understand exactly what you're paying and how it affects your long-term outcomes.
An investment philosophy based on evidence, not hype
The investment world is full of narratives, trends, and hype cycles. But regardless of where the market is, your preservation fund needs to grow steadily, capturing upside during bull markets and protecting capital during downturns.
What really matters: A clear, consistent investment approach based on evidence rather than storytelling or market predictions.
Questions to ask about your current provider:
- Do they frequently change their investment approach based on market trends?
- Are they always chasing the next hot sector or investment theme?
- Do they rely on complex strategies that are difficult to explain?
At 10X, we’ve always tried to follow a consistent, evidence-based investment philosophy focused on three key principles: asset allocation (which research shows drives approximately 90% of long-term investment returns), index diversification (since data consistently shows most active managers underperform their benchmarks over time), and low costs (which is one of the few factors you can control that reliably improves investment outcomes).
Warning sign: If your provider's investment updates sound more like market predictions or storytelling rather than focusing on long-term fundamentals, they might be more concerned with sounding smart than delivering reliable results.
Asset allocation aligned with your time horizon
Your preservation fund's asset allocation - how your money is divided among different assert classes like stocks, bonds, property, and cash - should align with how long you'll be invested.
What really matters: An allocation strategy that maximizes growth potential while managing risk appropriately for your specific retirement timeline.
Generally speaking, the longer your investment horizon:
- The more equity exposure you can afford to have (for greater growth potential)
- The less you need to worry about short-term market volatility
If you still have 15-20 years until retirement, an overly conservative portfolio (e.g. heavy on cash and bonds) could significantly limit your growth potential and leave you with less income in retirement.
Warning sign: If your preservation fund's asset allocation hasn't changed as you've gotten closer to retirement, or if it seems inappropriate for your time horizon, your provider might not be actively managing this crucial aspect of your retirement strategy.
When Should You Consider Switching Providers?
If you've evaluated your preservation fund against these four indicators and found it lacking, it might be time to consider making a change. But before making any decisions, it's worth getting an objective comparison. 10X offers a free Cost Comparison Report that shows exactly how your current provider stacks up against alternatives in terms of fees and potential long-term impact.
Taking action: Some next steps to consider
If you're concerned about the performance of your preservation fund, here are some practical next steps:
- Gather your current statements and fee information for a complete picture
- Check your performance against relevant benchmarks over periods of 5+ years
- Use our EAC Calculator to understand your total fee burden
- Request a Cost Comparison Report for an objective analysis
Speak with a 10X investment consultant who can help you evaluate your options without the pressure of commission-based advice
Don't settle for a preservation fund that's just "good enough." Make sure it's working as hard as possible for your future.
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