Business Mantra News
Pension and Provident Fund both come under the Social Security heads, both of these are long term investment/savings plans and are providing livelihood security to the employees after their retirement.
The plans for Provident Fund had been initiated in the era of British Government and that brings up Provident Fund Schemes for regular waged employees in order to support them after retirement.
The Provident Fund provisions were as firstly coded in the Provident Funds Act, 1925, enacted for the regulations and management and governance of rules related to Provident Fund.
It is only after independence that the Government started thinking of applying the provisions of Provident Fund for private sector employees.
What is provident Fund?
Provident Fund is part of retirement plans and its motive is to provide financial support to the employees. The fund originates from the contribution of both the employer and the employee. The employee will get his provident fund generally at the time of retirement but in special cases one may withdraw a specific sum from his provident fund. Government may set the age after which withdrawal can be made by the employees.
Provident Fund refund is in the form of lump sum payment but of late there are some provisions were one can get a part of it monthly in the form of pension.
Though Provident Fund is sort of Pension Fund, but there are some differentiation between the duo. As Provident fund is deducted from the salary and is compulsory for an employee to contribute from salary in the fund. The contribution to Provident Fund is exempted from Income Tax up-to certain limit.
What is Pension?
On the other hand, Pension is the fund created by either contributed by employee or by employer. Thereafter it is paid to the employee on monthly basis in the form of pension. However, in NPS schemes, Government has started deducting funds out of the salary of the employee to make payment of pension after retirement.
The Pension which is paid only after retirement till the employees lives, and 50% after his death to his/her spouse. It provide more safety and financial help to the retired employees or his/her spouse. While one may withdraw their PF during service period. Thus PF does not provide as much security of survival to retired employees as pension ensures old age security.