What are the Benefits of a Preservation Fund?

designbythink 2018, Quarter 4 Newsletter 2018

WHAT are the benefits of A PRESERVATION FUND?

A preservation fund is tax-efficient

If you transfer your retirement fund credit to a preservation fund, the transfer is tax exempt. Also, you do not pay tax on the returns earned by your preservation fund. When you draw your savings on retirement, you will be taxed at favourable rates.

NOTE: If you cash out early, this concession will fall away and your withdrawal will be subject to tax.

You can also transfer your preservation fund to another preservation fund, a retirement annuity, or to your new employer’s retirement fund without having to pay tax.

You have access to your funds

Before you reach the age of 55, you are allowed to make ONE partial or full withdrawal from your preservation fund.

This is an excellent facility to have in case of real emergencies.

Your withdrawal will be taxed. You are allowed to make one early withdrawal for each transfer to a preservation fund.

NOTE: The balance can only be accessed at retirement, or from age 55 onward.

You can
retire from a preservation fund

You have the option to retire from your preservation fund from age 55 onwards.

NOTE: You do not need to retire from your employer to retire from the preservation fund.

On retirement from the preservation fund all or part of your investment value may be taken as a lump sum:

  • If your total investment value at retirement is less than R247 500, the full amount can be taken as a lump sum.
  • If your total investment value at retirement is more than R247 500, a maximum of one-third of your investment value may be taken as a lump sum.
  • The balance of the investment value MUST be invested in a compulsory annuity (pension).
  • No ongoing contributions can be made to the preservation fund.


Not cashing out your benefits will help to ensure that you are in a better position to retire comfortably one day.

If you do not preserve:

  • you will no longer have savings
  • you will lose all the interest that your savings would have generated.

The interest on your investment returns compounds over time, turning even modest savings into sizeable amounts after only a few decades.

Start early

The earlier you start saving, the greater your compound interest will be and the more money you will earn. Compound interest means you are earning interest on interest. This is basically growth on growth.

Interest can be your friend if you’re earning it, and it can be your enemy if you’re paying it.

We are also living longer so will need even more money to retire comfortably.

Never cash out

If you decide to spend your pension payout on a luxury item or a holiday, you will lose out significantly on the compounding effect. Don’t be tempted.

be sure to preserve your savings – your future self will thank you!