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Provident Fund Vs Pension Plans

Published On Jan 11, 2022

Every worker must retire at some time, and rather than hiding our heads in the sand, we should be cognisant of the facts and be prepared. A properly researched retirement plan should account for all expenses, even unanticipated ones, to guarantee that an individual is setting away adequate investment cash each month.

It is critical that a person begins planning for retirement at a young age to ensure that they do not have to spend their golden years financially dependant on others. With two basic types of retirement plans available in India, Provident Fund and Pension Fund, determining which is best for an individual may be tricky. However, with sufficient study, it is possible to determine what serves an individual's purpose. To understand more about the difference between provident fund and pension plans, read on.

Difference Provident Fund And Pension Plans

Following are some of the listed differences between provident fund and pension plans -

  • Provident Fund

A provident fund is a government-sponsored retirement scheme. In order for the employee to develop a retirement corpus, both the employer and the employee must contribute to the provident fund account. The government enacts legislation that controls the provident fund, such as the minimum age, withdrawal amount, and maximum lock-in period.

Employee Provident Fund (EPF) and Public Provident Fund (PPF) are two common provident programmes for beneficiaries in India (PPF). Employees in both the commercial and public sectors are eligible for EPF, which is paid jointly by the employer and the employees. Anyone, on the other hand, can open a PPF account and invest annually for a minimum of 15 years to build a corpus.

A pension fund's benefits are more akin to that of an annuity, while a provident fund's benefits offer far greater investment freedom. Another noteworthy contrast is that all contributions to provident funds are mandatory.

  • Retirement Plans

A pension fund is another type of retirement planning programme in which both employers and employees pay to a pool of funds put aside to give pensions to employees. In most cases, however, it is the employer's responsibility to provide pension funds to its employees.

The National Pension Scheme is a pension fund provided by the Indian government to its employees (NPS). Employees are supposed to contribute 10% of their basic pay plus dearness allowance to the NPS, with the government matching this amount.

Provident Fund Vs. Pension Plans

The two forms of retirement plans utilised across the world are provident funds and pension funds, albeit their specifics vary by area. Provident funds are prevalent in Asia and Mexico, and they work similarly to Social Security in the United States.

Employers and governments contribute to pension funds, often known as pension plans or, more specifically, defined-benefit plans, which usually provide participants with a retirement benefit equal to a percentage of their working income. There are modest variances in how contributions are made and how benefits are accrued; the most significant differences are in benefit payment.

The most essential thing to remember, however, is that an individual should be adequately prepared for retirement since it is a time when money plays a vital role in many parts of one's life. Everything is billable, whether a person wants to go to the doctor or hire a cleaner, and financing it after retirement is straightforward with good retirement planning. Both of these plans are advantageous to retirees and, in the majority of situations, have a modest minimum contribution rate. As a result, a person should plan ahead of time and be financially prepared for their retirement years.


Thus, provident funds and pension plans differ in a variety of ways, including eligibility, returns, and the amount of money that an insured individual may invest in each. While government employees are automatically offered pension plans, it is up to the individual covered to analyse the programme and invest their hard-earned money in provident funds or pension plans.

You  may also like to read - Explore The Different Kinds Of Annuities

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.

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