Pension Funds

Pension and Provident Funds

The main aim from a pension or provident fund is to provide benefits for its members for when they retire from employment. The fund also usually pays benefits when a member dies while still working, or is unable to work because of illness, or is retrenched.

The difference between a Pension Fund and a Provident Fund.

The main difference is that if a pension fund member retires the member gets one third of the total benefit in a cash lump sum and the other two-thirds is paid out in the form of a pension over the rest of the member’s life.  A provident fund member can get the full benefit paid in a cash lump sum.

How does a pension or provident fund work?

Money goes into a fund through contributions from employers and employees (sometimes only employers contribute to the fund). These funds gain interest when the insurance company’s invest them. Money goes out of the fund to pay for benefits and also for the expenses of running the fund.

Normally a fund has these kinds of benefits

• Withdrawal benefit – paid to workers who resign or are dismissed.
• Retrenchment benefit – paid to workers who are retrenched.
• Retirement benefit – paid to workers when they retire.
• Insured benefit – including benefits paid to a worker who is disabled and benefits paid to the dependents of a worker who dies.

Not all funds provide all these benefits. To understand how any fund works, the member must read the rules of the fund.

Taxation on Pension or Provident Fund benefits.

Retirement age is normally from 55.