Provident Fund is a system in which employees invest while they are employed and receive benefits after retirement. This is a government-controlled compulsory retirement savings strategy for workers who can put a portion of their monthly savings into a retirement fund. The entire process is overseen by EPFO (Employees Provident Fund Organization). Organizations with more than 20 employees are eligible for their PF and must register with EPFO.
In 1952, the PF (Provident Fund) or EPF scheme was introduced under the Employee’s Provident Fund and Miscellaneous Act. All the rules and regulations are defined by the Employee Provident Fund Organisation. The EPFO’s activities are managed by the Ministry of Labour and Employment.
PF contribution is made by both the employees and the employer. The contributions get accumulated in the provident fund in the name of the employee. The contribution of the employer is 12% of the basic wage plus DA (Dearness Allowance).
A provident fund is a compulsory, government-managed retirement savings scheme used in Singapore, India, and other developing countries. In some ways, these funds resemble a hybrid of the 401(k) plans and Social Security used in the U.S. They also share some traits with employer-provided pension funds.
Workers give a portion of their salaries to the provident fund and employers must contribute on behalf of their employees. The money in the fund is then held and managed by the government and eventually withdrawn by retirees or, in certain countries, their surviving families. In some cases, the fund also pays out to the disabled who cannot work.
KEY TAKEAWAYS
- A provident fund is a compulsory, government-managed retirement savings scheme used in Singapore, India, and other developing countries.
- Both the employee and employer contribute to a fund that aims to provide financial support to the employee when they reach retirement.
- A provident fund is managed by the government, with set minimum and maximum contribution levels.