Pension & Provident Funds
A regular pension in retirement
Pension funds provide employees of a group with a regular pension in retirement, ensuring they are able to live a fulfilling life when they’re no longer able to work.
Pension fund members must buy an annuity with at least two-thirds of their retirement fund at retirement; but there is an added incentive of tax deductibility for monthly premiums paid into a pension fund. A pension fund is more tax-efficient than a provident fund for the employee (if the employee pays a part of the contribution).
The objective of a provident fund is to provide employees with a lump sum benefit at retirement. A provident fund is more flexible, as employees can still purchase an annuity with their fund, take the full lump sum value at retirement, or any combination in between.
Only the employer can claim a tax deduction for provident fund contributions.