What is a preservation fund?
When you leave a job, you decide what happens to the retirement savings you built up there. Cashing them in costs tax and the growth that money would have earned. A preservation fund holds the retirement savings from an employer’s pension or provident fund after you leave that job, for example when you resign or are retrenched. You transfer the money across instead of cashing it in.
A preservation fund accepts only transfers from other retirement funds. You cannot add new contributions to it.
How do the pots work?
Your savings keep the same pots they had in your employer’s fund:
| Pot | What’s in it | Access before retirement |
|---|---|---|
| Vested pot | Savings built up before 1 September 2024, plus growth | One withdrawal of part or all of it, if you have not used it before |
| Savings pot | One-third of contributions made since 1 September 2024 | One withdrawal a tax year, at least R2,000 |
| Retirement pot | Two-thirds of contributions made since 1 September 2024 | None, until you retire |
How are withdrawals taxed?
- A vested-pot withdrawal is taxed on the withdrawal table. The first R27,500 is tax-free over your lifetime, then 18%, 27% and 36%. Earlier withdrawals count towards these bands.
- A savings-pot withdrawal is added to your income for the year and taxed at your marginal tax rate (the rate on your next rand of income).
Every rand you take out now also stops growing for your retirement.
What happens when you retire?
You can retire from a preservation fund from age 55. You can then take your savings pot and up to a third of your vested pot in cash. If some of your savings came from a provident fund before 1 March 2021, you can usually take that part in full. The rest must buy an income, called an annuity, such as a living annuity. For the 2026/27 tax year, if that amount is R240,000 or less, you can take it all in cash.
Cash taken at retirement is taxed on the retirement table, where the first R550,000 is tax-free over your lifetime.
Things to know
- The vested withdrawal is a one-time option. Once you have used it, the rest of that money stays invested until you retire.
- Leaving South Africa? Your vested and retirement pots can be paid out once you have been non-resident for tax for three years in a row.
- You can move it to a retirement annuity (RA). A transfer to an RA does not count as your one withdrawal.
- Costs matter. Administration, platform and fund fees all reduce your savings.
Who it suits
A preservation fund may suit you if you are leaving a job, do not want to move your savings into a new employer’s fund, and want to keep the option of one withdrawal from your vested pot.