What is the difference between pension fund and provident fund

One of the most important factors that are taken into consideration by lenders when you apply for a loan is your CIBIL score. First Name Last Name. Investing Solutions. With two major types of retirement funds available in India i. Provident Fund and Pension Fund, choosing the right one for yourself can be a bit challenging. What is a Provident Fund? A Provident Fund is a government-sponsored retirement scheme.

Both the employer and the employee are required to contribute to the provident fund account with an aim to create a retirement corpus for the employee.

The set of rules that govern the Provident Fund such as minimum age, withdrawal amount, and maximum lock-in period etc. EPF is provided to the private and public sector employees where both employer as well as employees make contributions.

Whereas, anyone can open a PPF account and invest in it every year for at least 15 years to build a corpus. What is a Pension Fund? A pension fund is another retirement planning scheme in which both employers as well as employees make contributions to a pool of funds set aside for providing pension to the employees. Calculate Now. Plan your retirement with our calculator.

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Popularly Searched Terms. Pradhan Mantri Pension Plan. Types of Pension Plans. SIP Calculator. Mutual Fund Lumpsum Calculator. Home Loan Eligibility Calculator. Personal Loan Eligibility Calculator. Latest Articles. Tier 1 and Tier 2. Government contributes an equal amount on behalf of the employee to this scheme. Tier 2 is open for all, and there will be no contribution from the government.

Compare Provident Fund Vs Pension Fund to ensure you invest in the one that suits your financial needs. You must look at the following differences between provident fund and pension funds to understand the details of each scheme. Provident Funds and Pension Funds are both lucrative retirement schemes.

They differ from each other on the basis of certain parameters, such as eligibility, returns, and contributions. While public servants are automatically enrolled in a pension fund scheme by default to ensure their financial security. They enjoy higher returns and can diversify their investment portfolio. Experts recommend an investor must invest Rs. If you have a higher exposure to equity investments you can save up to Rs. The returns may be lower but still substantial.

You can also enjoy an income tax deduction of a maximum amount of Rs. This includes Rs. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. Retirement Planning k vs.

Partner Links. A pension plan is an employee benefit that commits the employer to make regular payments to the employee in retirement. Provident Fund Provident funds are retirement savings plans into which employees contribute portions of their salary, similar to U.

Social Security. Retirement Contribution Definition A retirement contribution is a payment into a retirement plan, either pretax or after tax. Unfunded Pension Plan An unfunded pension plan is an employer-managed retirement plan that uses the employer's current income to fund pension payments as they become necessary.

Plan Participant A plan participant either contributes into a pension plan or is in a position to receive benefit payments from the plan. Deferred Compensation Deferred compensation is when part of an employee's pay is held for disbursement at a later time, usually providing a tax deferred benefit to the employee. Investopedia is part of the Dotdash publishing family.

Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. You may take up to a maximum of one third of your savings in a cash lump sum.

This cash lump sum is taxable. You can take the full amount as a cash lump sum, subject to tax. If you leave a company before you retire, for example when you resign, you may have to move your retirement savings out of the company fund. You can move your savings either to:. You can also take up to a third as a cash payout. However, the cash payout will be subject to tax.

Tax is only payable when you access your funds. A pension fund is a retirement fund that receives frequent contributions usually monthly from you and your employer. At retirement, you can access up to one third of the benefit in cash, and the remaining two thirds must be used to purchase an income annuity.

With the retirement reforms introduced from 1 March , provident funds are now more similar to pension funds, and the following now applies:. Your age impacts how you draw on your provident fund.