Difference: Pension Plans vs. Provident Fund

To ensure financial stability after your retirement, having a proper retirement plan is important. Although your regular income avenue stops after retirement, your financial responsibilities certainly do not. In fact, they may increase as you age, besides other factors. 

Pension plans and provident funds, both are efficient retirement plans that help you after retirement. Read on to find the difference between them, to choose the best one for yourself.

What is a Pension Plan?

In a pension plan, the onus of the plan largely depends on the employer and the employing organisation. In pension plans, both the employer as well as the employee regularly contribute to the pension fund which in turn, provides pension to all employers. The amount usually depends on the age of the employer and the tenure of their employment.

An example of a pension plan is the National Pension Scheme (NPS). Government employees are eligible for NPS. Employees contribute 10% of their income and the dearness allowance to this scheme, and this is matched by the government.

What is a Provident Fund?

A provident fund is a retirement plan that is regulated by the government. There are set rules issued by the government such as the amount that can be withdrawn from the fund and the minimum age to enter the fund. Even after the death of the original fund-holder, their beneficiary can continue withdrawing their designated funds from the corpus of the provident fund. There are two types of provident funds, namely, Employee Provident Fund (EPF) and Public Provident Fund (PPF). 

Pension Plans vs. Provident Fund: Differences

Although pension plans and provident funds are both retirement plans, there are several differences between them. Take a look at these differences below.

Conclusion

Both pension plans and provident funds provide individuals an opportunity to gain financial security after they retire. According to your needs, circumstances, eligibility and accessibility, you must choose one for yourself. It is always a wise decision to save up for your future while you earn in the present.  

Also read 

The Different Types of Retirement Plans

Top 6 Retirement Mistakes to Avoid

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.