Preservation funds are a type of retirement savings. They are designed to preserve your retirement savings when you leave a pension or provident fund, usually when changing jobs or being retrenched. If you're changing jobs or are retrenched and want to avoid withdrawing your retirement savings.
In the FNB Retirement Insights Survey 2025, of the over 60's, almost 20% of Entry Wallet cashed out of their retirement funds to pay other expenses. The temptation of accessing funds has a large impact on your overall retirement savings pot as you basically need to start from scratch and will more than likely need to double your contributions to catch up.
Rather ensure that you have an emergency savings pot in case of those life events/emergencies.
Often the tax is also not taken into account, and you will end up paying tax at punitive rates on withdrawals. If you have taken withdrawals before the tax impact could be much larger than expected. Only the first R27,500 is tax-free and then amounts are taxed according to a sliding scale up to 36% - meaning more than 1/3 of the fund could be taken up by tax. Example: withdrawing R500 000 early could result in a tax bill of +-R85 950.
Disciplined planning means preserving your funds every time you leave employment. You can transfer your retirement funds free of tax into a preservation fund which serves as a good 'parking bay' and will grow free of tax. Your preservation fund will also benefit you with the compounding effect and the pot will experience growth on the growth if invested wisely for the long term.
Investment options need to be Regulation 28 compliant and will protect you from volatile market if staying invested for the long term. You can select from a range of options that meet your specific risk profile and have a diversified investment allocation to anything from money market to global exposures (although limited).
Secure your own long term financial security - with spiralling living expenses and higher mortality rates we need to plan for a much longer retirement. In the survey it was highlighted that respondents spend about 20% on groceries but only 9% on saving towards retirement. Any only 1 in 5 have a Retirement Annuity.
On transfer, you can make one withdrawal prior to transfer before age 55 but only the first R25 000 is tax-free; the rest is taxed according to SARS withdrawal tables.
Preservation funds are also protected from creditors under Section 37B of the Pension Funds Act, except for: SARS debts, divorce settlements and maintenance orders.
For estate planning purposes, these funds will not be included in your estate so no estate duty or executors' fees will be payable.
Once invested in the preservation fund you cannot make any further contributions. Make sure that you either join your new employers' retirement fund or open a personal retirement annuity to continue saving and investing towards a secure future lifestyle.
Of those under 60, the majority across all segments claim to have preservation funds but the overall results still show us that preparation and savings are still highly inadequate to support a comfortable retirement.
Key features of Preservation Funds
1. Purpose
2. Types
3. Withdrawals
4. Tax implications
5. Growth
6. Retirement
Why invest with FNB?
Benefit from paying a low flat annual administration fee
No upfront exit or penalty fees will apply for changing your investment strategy
Earn eBucks points on your monthly contributions and investment balances
Invest in a range of award-winning funds designed to target above inflation returns
Access the FNB Investment Insights portal for the knowledge and insights you need to make informed decisions and achieve your long-term investment goals
