Preservation Fund

A preservation fund is a fund in which employees, who leave the service of an employer owing to dismissal (including retrenchment) or resignation, or in the event of the dissolution of the employer’s pension or provident fund, may invest their accrued fund benefits.

The Income Tax Act also allow membership to:

persons to whom a pension interest from an ex-spouse’s retirement fund was awarded; employees of an employer whose business was taken over by another employer in terms of Section 197 of the Labour Relations Act, 1995; members of one preservation fund who choose to transfer to another preservation fund; members or dependants who do not claim their fund benefits from a pension or provident fund within 24 months of becoming entitled to it.

Why choose a preservation fund?

Preservation funds have proved to be beneficial retirement vehicles for millions of people, because they enable people to preserve their existing retirement benefits until retirement. A person who wants to preserve retirement fund benefits in a preservation fund must be a member of the preservation fund. For many people, their disciplined preservation efforts pay off when they retire with an intact nest egg. A preservation fund is an excellent investment instrument for tax-efficient savings as preservation fund members receive two tax breaks: Money in the retirement fund receive favourable tax treatment. Tax is not payable on rental income and interest, and no tax is payable on either capital gains or dividends received. The cash lump sum at retirement also receives favourable tax treatment. On retirement a part of the lump sum could be tax-free,  while the rest of the lump sum will be taxed at favourable rates. 
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Preservation Fund

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