Provident Fund Laws: What Is the Difference Between a Provident Fund and a Pension Fund?
Key Differences between Pension and Provident Fund in Bangladesh:
- Eligibility: Pension funds are typically available to government employees, whereas provident funds are accessible to both government and private sector employees.
- Contributions: Pension funds involve mandatory contributions from both employees and employers, while provident funds are funded primarily by employees.
- Purpose: Pension funds aim to provide a regular income stream post-retirement, while provident funds are designed for lump sum withdrawals or specific financial goals upon retirement.
- Withdrawal: Pension funds generally allow withdrawals only after retirement, with exceptions for financial emergencies. Provident funds permit partial withdrawals for specific purposes.
- Tax Benefits: Both types of funds offer tax benefits, but the specific tax treatment depends on the fund type and Bangladesh’s tax regulations.
- Investment: Pension funds often invest in fixed income securities like bonds, while provident funds may have a broader range of investment options, including equities.
- Management: Pension funds are typically managed by professional fund managers, whereas provident funds in Bangladesh might be overseen by organizations like the Employees’ Provident Fund (EPF).
Bangladesh Provident Fund Laws and Audit
To comprehend the provident fund, Laws and audit procedures in Bangladesh require us to first define “Provident Fund.” A provident fund is a fund through which a corporation pays employees when they leave their place of employment.
To put it another way, all employment lawyers in Bangladesh work under the definition that a provident fund is a type of fund in which employees of a company contribute a certain percentage of their basic salary every month in order to receive retirement benefits when they leave their employment.
We have produced this guide based on our experience accumulated over numerous years of providing employment legal services in Bangladesh.
It will provide an understanding of the provident fund legislation in Bangladesh and then outline the procedure of the provident fund audit in Bangladesh in brief.
According to Bangladesh’s provident fund laws, which can be understood by reading the Labour Act 2006 in conjunction with the Labour Rules 2015, employers are required to contribute a matching amount to the fund in addition to what employees contribute. The provident fund, on the other hand, should not be confused with the pension fund.
Employees of private enterprises profit greatly from provident funds in the absence of a pension fund program. It serves as a safeguard for their future. The Labour Act of 2006 governs Bangladesh’s provident fund legislation and procedures for setting them. The formation of a provident fund in the private sector is outlined in Section 264 of the Labour Act of 2006.
According to Bangladeshi provident fund laws, a Board of Trustees must be constituted by a corporation that will administer the provident fund. A Board of Trustees must include an equal number of employer and employee representatives, according to the law (section 264(5) of the Labour Act).
Step 1: Ensure Legal Compliance
An employee’s work must be permanent at his company in order to contribute to the provident fund and profit from it. This is due to the fact that a temporary employee is not covered by this program.
According to section 264 (9) of the Labour Act 2006, every permanent employee who has completed one year of service in the establishment must contribute to the fund every month in an amount that is not less than 7% and not more than 8% of his monthly basic income.
Employers are also required by law to pay an equal amount. Although companies may establish their own standards for keeping such a fund, they must not be more detrimental to employees than the legislative parameters that are supplied.
Furthermore, the Labour Act of 2006 requires the establishment of a provident fund for tea plantation workers as well as newspaper staff.
Step 2: Comply with the Provident Funds Act.
According to section 17 of the Labour Act 2006, a provident fund established under the Labour Act 2006 is assumed to be a government established for the purposes of the Provident Funds Act, 1925 (Act No. XIX of 1925).
Step 3: Annual Audit of Bangladesh’s Provident Fund
Every year, an audit of the provident fund is required. Auditing provident funds benefits both employers and employees. The accounts of revenue and expenditure of the provident fund must be audited every year, according to section 14 of the Labour Act 2006.
Step 4: Staying Current Company Financial Audit Every Year
A financial audit is a crucial feature for a firm for a variety of reasons. For example, it assists a firm in achieving its goals, preventing and detecting fraud, increasing the value and goodwill of the business, maintaining consistency, and so on. An audit of a provident fund extensively examines various critical aspects, including contributions made to the fund and the requirements, income generated by the fund, any payment or reimbursement from the fund, and so on.
Step 5: Keep your tax documents up to date.
If a company’s provident fund is recognized by the NBR (National Board of Revenue), both the employee and the employer are excluded from income tax on the fund amount.
What makes us the finest Provident Fund Audit and Legal Services provider in Bangladesh?
TAHMIDUR RAHMAN REMURA WAHID Associates offers an excellent financial legal service wing comprising of Certified Chartered Accountants of Bangladesh and an experienced audit team.
We have a lengthy history of delivering audit and assurance services (including Fund Audit) to our clients. We have built a solid name among our clients over the years by providing audit services carefully and professionally. Our team quickly distinguishes itself from others in terms of audit, documentation, reporting, objectivity, and other talents.
Our audit & assurance team provides internal audit, external audit in collaboration with our audit partners, performance audit, fund audit, and other services. During the audit, our team ensures that all numbers in the statement are correctly computed and transparent, as requested by the Client. Furthermore, our professionals assure compliance with existing internal control processes as well as Accounting Standards around the world by reviewing records and company practices.
A pension plan is a type of retirement plan in which a company and/or employees contribute to a pool of assets set aside for the workers’ future benefit. The funds are invested on behalf of the employees, and the proceeds from the investments assist pay the workers’ retirement lives. A pension fund, unlike a provident fund, is often managed by an employer rather than the government.
Individual participants in some pension funds may be able to choose their investments and contribution amounts, although most provident funds have mandatory contributions and centrally managed investments. Some provident fund accounts, unlike Social Security, are held in individual names rather than being pooled into a single trust fund account.
Members of a pension fund can collect as much of their benefits as they like in a lump sum when they retire, though monthly installments are more typical.
In some ways, the benefits of a pension fund are similar to an annuity, whereas the benefits of a provident fund provide significantly more payment flexibility. The other significant distinction is that all provident fund contributions are mandatory.
|Aspect||Pension Fund||Provident Fund|
|Nature||A retirement savings scheme with regular contributions for future income.||A savings scheme with employee-contributed funds, often used for lump sum payments or specific purposes.|
|Contributions||Both employers and employees make contributions.||Contributions are typically made solely by employees.|
|Investment Management||Professional fund managers oversee long-term growth.||Employees may manage investments, often in fixed deposits and bonds.|
|Taxation||Withdrawals taxed as income in the year received.||Tax-free withdrawals up to a certain limit.|
|Payment Options||Offers annuity options for steady post-retirement income.||Provides a lump sum payment at maturity.|
|Employer Obligations||Employers may need to make additional contributions to meet actuarial standards.||No further obligations after initial contributions.|
|Vesting Period||Often has a vesting period before eligibility for benefits.||Often no vesting period, immediate benefit access.|
|Pre-Retirement Access||Generally, funds cannot be withdrawn before retirement, except in specific circumstances.||Allows withdrawals for specific purposes like home purchase or education.|
|Taxation of Returns||Returns taxed based on income tax slab rates.||Returns taxed based on income tax slab rates.|
|Eligibility||Typically offered to government employees.||Offered to both government and private sector employees.|
|Investment Management||Managed by professional fund managers.||Managed by organizations like the Employees’ Provident Fund Organization (EPFO).|