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What Are The Differences Between Provident Fund And Retirement Plans?

Published On Nov 23, 2021

Every individual who works has to retire at some point, and rather than burying our heads in the sand, it's better to be aware of the facts and be prepared. A meticulously studied retirement plan should account for all expenditures, even unforeseen ones, to ensure that an individual is setting aside appropriate investing funds every month.

It is crucial that an individual begins preparing for their retirement at an early age to guarantee that they do not have to spend their golden years financially reliant on others. With two primary types of retirement funds accessible in India, Provident Fund and Pension Fund, deciding which one is suitable for an individual might be difficult. But with proper research one can understand what serves an individual’s purpose. To understand more about the difference between provident fund and retirement plans, read on.

Difference Provident Fund And Retirement Plans

Following are the listed differences between provident fund and retirement plans -

  • Provident Fund

A government-sponsored retirement plan is known as a provident fund. Both the employer and the employee must contribute to the provident fund account in order for the employee to accumulate a retirement corpus. The government establishes the laws that regulate the provident fund, such as the minimum age, withdrawal amount, and maximum lock-in duration.

Employee Provident Fund (EPF) and Public Provident Fund (PPF) are two popular provident plans in India for beneficiaries (PPF). Employees in the private and governmental sectors are eligible for EPF, which is funded by both the company and the employees. Anyone, on the other hand, can register a PPF account and invest annually for at least 15 years to develop a corpus.

A pension fund's benefits are more akin to an annuity, but a provident fund's benefits give far greater payment flexibility. The other significant distinction is that all provident fund contributions are obligatory.

  • Retirement Plans

Another retirement planning scheme is a pension fund, in which both employers and workers contribute to a pool of cash set aside to provide pensions to employees. In most circumstances, however, it is the employer's obligation to offer pension funds to its employees.

The National Pension Scheme is the pension fund given by the Government of India to its employees (NPS). An employee is expected to deposit 10% of their base wage plus dearness allowance to the NPS, with the government matching this contribution.

Provident Fund Vs. Retirement Plans

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

Employers and governments provide pension funds, often known as pension plans or, more particularly, defined-benefit plans, which typically provide members with a retirement benefit equivalent to a portion of their working income. There are minor distinctions in how contributions are made and how benefits are accumulated; the most important differences are in the payment of benefits.

However, the most important thing to remember is that an individual should be fully prepared for their retirement since it is a period when money plays a significant part in many aspects of one’s life. Everything is billable, whether an individual wants to go to the doctor or hire a maid, and affording it after they have retired is simple with excellent retirement planning. Both of these plans are beneficial to retirees and, in most cases, come with a low minimum contribution rate. So, an individual should plan ahead of time and be financially prepared for their elderly years.


Thus, provident funds and retirement plans differ from each other in a number of ways, including eligibility, returns, and the amount of money that an insured individual may put into them respectively. While government employees are automatically given their pension plans, it is up to the respective insured individual to evaluate the scheme and put their hard-earned money into provident funds or retirement plans respectively.

Also read - Different Pension Schemes Available In India

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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