What are the differences between pension and provident funds?
|Pension Fund||Provident Fund|
|Retirement Benefit||The equivalent cash value of one-third (maximum) of the pension benefit at retirement may be taken in the form of a cash lump sum.
Two thirds thereof, if the maximum cash option is elected, is payable in the form of a regular monthly income (pension) after retirement. This pension needs to be purchased from a registered insurer.
|The total retirement benefit is payable as a cash lump sum. Please note that the fund rules do however allow the retiring member the option to purchase a compulsory annuity instead of receiving the full retirement benefit in cash.|
|Tax on Member Contributions||Member contributions to a Pension Fund are deductible from income for tax purposes up to 7.5% of your salary. The effect is that your net take home pay increases under a Pension Fund arrangement.
If you contribute to a pension fund you do so before tax. This means that your fund contributions are first deducted from your salary before your salary is taxed. When you retire you therefore have to pay tax on these contributions.
|Tax on exiting the Fund||Member contributions, as well as any income earned, are taxed.||Company contributions, as well as any income earned, are taxed.|