By Michael Rossouw, Senior Investment Consultant at 10X Investments
When most of us change jobs, we focus on the perks of our new position: a better salary, more benefits or a more senior title. What we often don’t consider is our retirement savings.
If you cash out, you take an immediate tax hit and lose years of compounding. If you do nothing – and most people don’t – that pension sits dormant in an old employer scheme, in a portfolio you probably never chose and at fees you are likely unaware of.
Under the Two-Pot system, most retirement savings must now be preserved when you change jobs, but preservation alone doesn’t mean the money is working as hard as it should be for you.
Your pension belongs to you
One persistent myth in South Africa is that a pension or provident fund somehow belongs to the employer that established it. In reality, once contributions are paid over, that money becomes the property of a separate legal entity managed by a board of trustees for your benefit.
When you leave a company, your retirement savings automatically stay behind in that fund as a preserved balance – what the industry calls a “paid-up benefit” in that fund, so you stay in whatever default portfolio the employer had picked for its staff. While you keep paying the attached fees, you get limited reporting. In effect, you have a sizable asset, parked in a vehicle designed around your former employer’s needs, not your own.
Avoidance has a cost
There is a strong behavioural reason this keeps happening: humans naturally choose the path of least resistance. Research into the “Ostrich Effect” shows that when financial tasks feel complex or “heavy”, our brains treat them as a threat, triggering a psychological avoidance that causes us to postpone even the most critical decisions. This inertia is a primary driver of South Africa’s unclaimed benefits problem: The Financial Sector Conduct Authority (FSCA) estimates more than R90 billion is sitting untouched, largely due to “member apathy” and the perception that moving a pension is complicated.
But avoidance carries a price tag of its own, because the funds where these dormant pensions are kept are rarely cheap. These charges are usually layered: an investment fee for the manager, an admin fee for the platform, and an advice fee for the broker, which shave off your returns. National Treasury research, re-validated by the FSCA in their 2022 Investment Guide, has shown that a person paying 2.5% in fees instead of 0.5% will end up with a retirement pot that is 60% smaller after a 40-year career. You aren’t just paying a fee; you are effectively forfeiting more than half of your potential wealth to admin and advice charges.
Default portfolios can make things worse, if they are too cautious for your age, or heavily tilted to a narrow part of the market. Over time, that can mean weaker growth than a simple, low‑cost, diversified portfolio.
On paper, the gap between paying 2% a year and under 0.7% doesn’t look huge. Over time, it can be. On a R500,000 balance earning a gross return of 10% a year, the higher-fee investor could end up with roughly R3.4 million after 25 years. At 0.7%, the same money could grow to about R4.6 million, purely because more of the return was eaten by fees. Over 30 years, that gap could widen to over R2 million.
Moving your money is simpler than you think
Where you move your money depends on your situation. If your new employer’s fund has competitive fees and a suitable investment range, you can transfer directly into it. Otherwise, a preservation fund keeps your savings ring-fenced for retirement while giving you one withdrawal opportunity before you retire, or you can move the money into a retirement annuity if you want to consolidate your savings and are comfortable locking them away until retirement.
An expert can help you weigh up the trade-offs, but the key point is that all three options beat leaving your money in a fund no one is watching.
Many people stay put because they assume moving their savings will be a bureaucratic nightmare. That’s no longer the case. Modern platforms have simplified the process considerably.
Broadly, the process works like this: Request a benefit statement and transfer forms from your current fund, indicating that you want a transfer, not a cash withdrawal. Open an account with your chosen provider and complete their preservation or transfer application. Provide standard documents: your ID, proof of address, bank details and tax number, so the new provider can meet FICA and other regulatory requirements. Authorise the transfer. From there, the two funds handle the Section 14 transfer process between them, where applicable.
Done this way, the transfer is tax-neutral. Your money moves directly from one approved fund to another, without triggering a tax event. Some providers let you track the progress online and give you a view of your fees and underlying investments once the money clears.
Take charge of your retirement
Many people who have changed jobs in the past few years might have retirement savings gathering dust in an old employer fund. They probably know it’s there, they just haven’t “got to it” yet. Which means they haven’t paid attention to the fees, the investment mix, or the reporting since they left their old company.
You have almost no influence over financial markets. Fees are one of the few things you actually can influence. Leaving your savings sitting in a default, high‑fee fund is not inaction; it is a decision – and it may be one of the most expensive ones you make about your retirement.
Michael Rossouw is a Senior Investment Consultant at 10X Investments, which offers low-cost preservation and retirement annuity funds
This article is provided for general information purposes only and does not constitute financial advice as defined in the Financial Advisory and Intermediary Services Act (FAIS). The statistics and research cited herein are for informational purposes only. Past data is not indicative of future outcomes. This information does not take into account your personal financial situation, needs, or objectives. Readers are encouraged to seek advice from a qualified financial adviser before making any financial decisions. 10X Investments is an authorised financial services provider, FSP license number 28250.
