What is Retirement Plan

Basically it is a saving, or it is a saving in small installments, which is collected during your professional life of an individual and invested profitably. After retirement, the individual is entitled to a steady monthly income from a fund built up from the earlier savings.

In a sense, it is a reward to the employee, for his effort on delayed gratification, which he saved while working.

Why a Retirement Plan

A retirement plan is important due to the following benefits:

• After retirement when the monthly pay-cheque stops, the individual starts receiving a regular monthly income in the form of a pension.
• the individual gets a tax concession.
• The individual, after retirement, need not fear of a drastic reduction in his standard of living.
• No tax is applied on Pensions.
• Retirement comes as planned and not as a shock.

Comparison amongst Provident Fund and Gratuity.

1. Provident Fund

Provident fund is like your bank’s savings account. The contribution from the employer as well as the employee ( a certain percentage of the salary) along with interest accumulated over the years, is handed over to the employee on his retirement.

However, in case an employee wishes to leave before retirement is due, the employer's contribution may or may not be paid; or only part payment may be made till the date of resignation of the employ or his termination from the employment.

2. Gratuity

Gratuity is an exclusive contribution made by the employer to benefit the employee. half or a full month's salary is credited for every year of service. Reserves are set aside in the balance sheet but they do not attract tax concession, unless it is a funded scheme. The security of the employee to receive the gratuity is dependent on the continued existence of the employer and his profits, except in the case of a funded scheme.