Preservation Funds: What Happens to Your Retirement Savings When You Change Jobs

Your fund does not follow you automatically

When you resign, get retrenched, or are dismissed, your employer's pension or provident fund does not simply carry on in your name. Within a set period, the fund administrator needs an instruction from you about what happens to the balance you built up while you were employed there, and if you don't give one, the money typically sits in the fund earning limited or no further growth until you do.

You generally have three options: take the full balance as a cash lump sum and pay tax on it immediately, transfer it into your new employer's fund if the new fund accepts transfers in, or transfer it into a preservation fund in your own name. Only the third option is built specifically to hold onto retirement savings between jobs without forcing an immediate tax event or requiring you to already have a new employer fund lined up.

What a preservation fund actually is

A preservation fund is a retirement fund you own individually rather than through an employer. Its only job is to receive a transfer from a pension or provident fund you're leaving and keep growing it under the same tax-sheltered conditions until you retire. You choose the provider and the underlying investment portfolio, within the same Regulation 28 limits that apply to pension and provident funds.

Unlike a retirement annuity, you can't add new monthly contributions to a preservation fund once the transfer is done, it exists to hold what you already had, not to keep growing through fresh payroll deductions. If you want to keep contributing after you leave a job, that happens through your new employer's fund or a separate RA, not the preservation fund itself.

There are two types: a pension preservation fund receives money transferred from a pension fund, and a provident preservation fund receives money transferred from a provident fund. Since the rules governing pension and provident funds converged in recent years, the practical difference between the two preservation fund types has narrowed, but the transfer still has to match the source fund type.

The one withdrawal you get before retirement

The historical rule that makes preservation funds attractive is this: you're allowed one full or partial cash withdrawal from the vested portion of the fund at any time before retirement age, with no requirement to prove hardship or justify the reason. Once you've used that withdrawal, whether you took R5,000 or the full balance, you cannot make a second one from that vested portion. It stays locked until retirement (from age 55).

This single-withdrawal rule only applies to money that was already in the fund before 1 September 2024, the vested component under the two-pot system. It gives you one point of flexibility if you genuinely need access, without turning the fund into something you can dip into repeatedly the way you can with a two-pot savings component.

A withdrawal taken this way is taxed under SARS's withdrawal lump sum table, not your normal income tax brackets. The first R27,500 is tax-free (a lifetime total across all withdrawal lump sums, not per withdrawal), the next portion up to R726,000 is taxed at 18%, the portion from R726,001 to R1,089,000 at 27%, and anything above R1,089,000 at 36%. It's less generous than the table that applies to lump sums taken at actual retirement, which carries a much larger R550,000 tax-free portion, but it's still a separate, usually lower, rate than paying at your marginal income tax rate on a savings pot withdrawal.

How two-pot changed what gets transferred in

Since 1 September 2024, the balance you're transferring out of an employer fund isn't a single pool anymore, it's split into a vested component (built up before that date), a savings component (one third of contributions made since), and a retirement component (two thirds of contributions made since). All three transfer into your preservation fund together, and each keeps the rules that applied to it in the original fund.

The vested component keeps the one-withdrawal-before-retirement rule described above. The savings component keeps the two-pot rule of one withdrawal per tax year, minimum R2,000, taxed at your marginal rate. The retirement component stays locked until retirement regardless of which fund holds it. Moving the money into a preservation fund doesn't reset or combine these rules, it just carries them across intact.

Because a preservation fund generally doesn't receive new contributions after the initial transfer, the savings component inside it typically stops growing from that point on, aside from investment returns. You can still make your one allowed withdrawal from it in a future tax year if you haven't already used that year's withdrawal from another fund, but there's no new one-third split happening inside the preservation fund itself.

Transferring versus cashing out

Transferring your full benefit into a preservation fund is a tax-neutral event, no tax is due at the point of transfer, because the money is moving between retirement funds rather than leaving the retirement system. Cashing out instead means the full balance (minus the R27,500 tax-free portion, minus whatever lifetime withdrawal lump sums you've already taken) is taxed immediately under the withdrawal table above, and what's left is yours to spend or invest outside a retirement fund, where future growth no longer enjoys the same tax shelter.

There's also a de minimis exception: if your total retirement interest at the point of leaving is below R360,000 (increased from R247,500 in the 2026 budget), you can take the whole amount in cash without needing to preserve any of it, since forcing a small balance into an annuity structure later isn't practical for either the member or the fund.

Worked example: a R450,000 transfer versus a full cash-out

Say you resign after eight years with an employer pension fund, and your full benefit (all vested, since this example predates the two-pot split for simplicity) is R450,000. You've never taken a withdrawal lump sum before.

If you transfer the full R450,000 into a preservation fund, no tax is deducted. The full amount continues growing under the same tax-sheltered conditions it had while you were employed there.

If you cash out instead, the withdrawal table applies to the full R450,000: the first R27,500 is tax-free, and the remaining R422,500 is taxed at 18%, roughly R76,050. You'd receive approximately R373,950 after tax, a permanent loss of more than R76,000 to SARS, plus every year of future tax-sheltered growth that R76,050 would otherwise have earned inside the fund.

If you later need access, transferring first and then making your one allowed vested-component withdrawal from the preservation fund produces the same tax outcome as cashing out immediately, the same table applies either way. The advantage of transferring is optionality: the money keeps growing until you actually need it, rather than being taxed on day one whether you need it yet or not.

Preservation fund versus your new employer's fund

If your new employer's fund accepts transfers in (most do), moving your old balance there is also tax-neutral, and it has the advantage of consolidating your retirement savings into one place rather than leaving a separate preservation fund open somewhere else. The trade-off is that you lose the standalone one-withdrawal flexibility a preservation fund offers, since once it's inside your new employer's fund, it follows that fund's rules going forward.

A preservation fund makes more sense if you're between jobs and don't yet have a new employer fund to transfer into, if you want to keep the option of one future withdrawal separate from your ongoing retirement savings, or if you're moving to self-employment and won't have an employer fund at all. If you're moving straight into a new job with a fund that accepts transfers and you're confident you won't need early access, transferring directly there avoids managing an extra account.