The main aim of a provident fund is to provide benefits for its members 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 benefit of a Provident fund is based on contributions made together with portfolio performance and growth and usually may be paid out as a full lump sum, part lump sum and income for life or full income benefit. This is a decision that the employee may make at retirement.
The main difference between a pension and provident fund is that the full retirement benefit on a provident fund may be taken as a cash lump sum. On a pension fund only 1/3rd may be taken as a lump sum and the rest of the benefits needs to supply a life-long income.