The retirement decision most South Africans get wrong
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What happens to your retirement savings when you leave an employer is one of the most consequential financial decisions most South Africans will make – and one of the most commonly mishandled.
In this podcast conversation with Mpho Chitapi, 10X Investments senior investment consultant Michael Rossouw sets out what should happen, what often does, and where the costs lie.
When an employee resigns, their pension or provident fund does not automatically follow them. Money is frequently left behind in an old employer fund by default, or withdrawn in cash during the transition. The cash option is the most damaging. Rossouw cautions against it not because the money is needed less in the short term, but because removing capital interrupts compounding in a way that is extremely difficult to recover from later, even on higher future earnings.
A point Rossouw made bluntly is worth restating, because it is widely misunderstood: under the Pension Funds Act, individuals do not own pension or provident funds. Only a company can establish one, and employees are members of an employer-sponsored fund rather than owners of it. When the employment ends, the relationship with the fund changes, too.
What individuals can own are retirement annuities and preservation funds. A preservation fund is the vehicle into which an employee can transfer their accumulated retirement savings when they leave a job, taking direct control of how the money is invested and what they pay to have it managed.
That control matters. A preservation fund lets the holder choose an asset allocation aligned to their risk profile and time horizon, and integrates with a retirement annuity or a new employer fund as part of a single retirement plan. Leaving money behind in an old employer fund offers none of those advantages.
Rossouw’s sharpest warning is on fees. Even a well-structured retirement plan can be quietly undermined by costs that compound in the same way returns do – only in the wrong direction. He urged savers to interrogate the effective annual cost (EAC) of any product they sign on for. A 1.5 percentage point difference in annual fees sounds modest, but compounded over a working lifetime it can erode a meaningful share of an eventual retirement balance.
Higher fees are not always justified by better performance, Rossouw says, and savers should be especially cautious about committing to high-cost products on long contracts.
He is more measured on the role of online calculators and AI-powered tools, which have made it easier than ever for individuals to model their own retirement scenarios. The tools are useful, he says, but their inputs and assumptions need to be checked carefully – and outputs interrogated rather than accepted at face value.
The underlying message is straightforward. Retirement planning when changing jobs does not require expertise. It requires attention, an understanding of the available vehicles and a clear-eyed view of what fees will cost over time. The decision made at the point of resignation – leave it, transfer it or cash it out – is one of the most consequential a person makes for their own future self.
It is, ultimately, your money.
In this podcast conversation with Mpho Chitapi, 10X Investments senior investment consultant Michael Rossouw sets out what should happen, what often does, and where the costs lie.
When an employee resigns, their pension or provident fund does not automatically follow them. Money is frequently left behind in an old employer fund by default, or withdrawn in cash during the transition. The cash option is the most damaging. Rossouw cautions against it not because the money is needed less in the short term, but because removing capital interrupts compounding in a way that is extremely difficult to recover from later, even on higher future earnings.
A point Rossouw made bluntly is worth restating, because it is widely misunderstood: under the Pension Funds Act, individuals do not own pension or provident funds. Only a company can establish one, and employees are members of an employer-sponsored fund rather than owners of it. When the employment ends, the relationship with the fund changes, too.
What individuals can own are retirement annuities and preservation funds. A preservation fund is the vehicle into which an employee can transfer their accumulated retirement savings when they leave a job, taking direct control of how the money is invested and what they pay to have it managed.
That control matters. A preservation fund lets the holder choose an asset allocation aligned to their risk profile and time horizon, and integrates with a retirement annuity or a new employer fund as part of a single retirement plan. Leaving money behind in an old employer fund offers none of those advantages.
Rossouw’s sharpest warning is on fees. Even a well-structured retirement plan can be quietly undermined by costs that compound in the same way returns do – only in the wrong direction. He urged savers to interrogate the effective annual cost (EAC) of any product they sign on for. A 1.5 percentage point difference in annual fees sounds modest, but compounded over a working lifetime it can erode a meaningful share of an eventual retirement balance.
Higher fees are not always justified by better performance, Rossouw says, and savers should be especially cautious about committing to high-cost products on long contracts.
He is more measured on the role of online calculators and AI-powered tools, which have made it easier than ever for individuals to model their own retirement scenarios. The tools are useful, he says, but their inputs and assumptions need to be checked carefully – and outputs interrogated rather than accepted at face value.
The underlying message is straightforward. Retirement planning when changing jobs does not require expertise. It requires attention, an understanding of the available vehicles and a clear-eyed view of what fees will cost over time. The decision made at the point of resignation – leave it, transfer it or cash it out – is one of the most consequential a person makes for their own future self.
It is, ultimately, your money.
