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What are the differences between Pension fund and Provident fund ?
- 2 decades agoFavorite Answer
Pension funds vs Provident funds:
"The main difference between a pension and provident fund is the following:
* Under a pension fund at least two-thirds of the final benefit must be paid as a pension for the rest of the pensioner's life. A maximum of one-third of the final benefit may be taken as cash.
* Under a provident fund, the full amount of the benefit available at retirement may be taken as a lump sum cash payment, irrespective of whether the benefit is calculated on a defined benefit or a defined contribution basis."Source(s): please choose a best answer. There is a contest that requires a best answer for entry.
- Anonymous5 years ago
Provident fund ensures a fixed lumpsum at termination of service or earlier ( if you resign and do not continue service). Cumulative interest accrues on such lumpsum computed on monthly balance. Both employee and employer contribute to provident fund. In pension fund, a regular income is ensured to the employee after retirement ( or even before if the employee resigns and does not continue service). Upto 1/3rd of the pension fund can be encashed as lumpsum ( called commutation) and balance has to be compulsorily taken in the form of pension. Provident fund does not ensure regular income after discontinuation of service. And employee normally does not contribute to pension fund.