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Questions
Distinguish between Provident Fund and Pension.
Mention any two differences between Provident Fund and Pension.
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Solution
- Contributions: In standard provident fund schemes (like the EPF in India), a percentage of the basic salary is deducted from the employee, and the employer matches it. However, for the pension component (like the Employee Pension Scheme - EPS), the funding typically comes from diverting a portion of the employer's contribution, meaning the employee does not make a direct out-of-pocket contribution strictly for the pension.
- Payout Structure: This is the fundamental financial difference between the two. A Provident Fund acts as a forced savings account that yields a single, large lump-sum payout upon retirement. A Pension is an annuity designed to provide a steady, recurring monthly income post-retirement.
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