Date posted: 15, Aug 2025
Author: Muhammad Muddasir
A Provident Fund is a scheme that allows salaried individuals to save money for their future needs. It helps people save money for the future, especially for retirement. In this plan, both the employer and the worker contribute money to the fund each month. Because regular contributions are made and money is made, the savings grow over time. The worker gets the full amount when their shift is over.
A provident fund is a kind of savings scheme whereby the employee and the employer contribute an agreed sum of money equivalent to a certain percentage of the monthly salary of the employee. When the employee retires, quits, or is fired, he or she receives the full sum along with any interest or profit that has accumulated during the employee’s lifetime.
According to the Provident Fund Act of 1925, most provident funds in Pakistan are set up in this way, or companies manage these funds through trust deeds. Ordinarily, these funds are meant for people who are permanently employed by an organisation.
There are three main types of provident funds in Pakistan:
The working of a provident fund is simple:
A fixed percentage of the employee’s basic salary is deducted every month and deposited into the PF account.
In this scheme, the employer also contributes a matching percentage of the amount that all the employees contribute.
the total collection is wisely invested in some term deposits or any kind of mutual funds to earn more returns.
When the employee moves out of the organization or after their retirement, they receive the total contribution and accrued profit.
For instance, if an employee is having a basic pay of 50 thousand and the PF contribution rate is 10%, then:
Contribution rates are subject to changes, but in Pakistan, the general scenario is:
Employee Contribution: 8 -10 percent of basic salary.
Employer Contribution: An equal amount to the contribution of the employee.
Other organizations will contribute more as a way of benefit.
Provident funds regulations in Pakistan typically include:
Typically accessed by those employees who are permanent once their probationary period is over.
Monthly deductions are executed on the basic pay.
The contribution is matched by the employer.
Profit is estimated on an annual basis and posted to the PF account.
These investments are usually in low-risk financial instruments.
In the case of resignation, retirement, death, or termination.
Housing, medical, and child education, having a right to partially withdraw may be permitted (Depending on the policy of the organization).
1. Retirement Security: Makes sure that the employees are taken care of, financially, after retirement.
2. Employer Matching Contribution: Employer contributions serve to effectively triple or even quadruple workers’ savings.
3. Tax Benefits
Tax deductions can be made on contributions. Other times, the withdrawal that takes place after a period of time is not subject to any taxes.
4. Mandatory Savings: Employees can save easily due to regular skimming, since employees do not get the urge to spend the money.
5. Piling of Profits: Investments by contributions generate profit that leads to higher-end pay.
6. Emergencies: In case of emergency, urgent withdrawals of a part of the money can be granted where necessary, such as in the case of medical expenses or a home purchase.
Provident funds are widespread in the medium-to-large organisations in the private sector, particularly the multinationals, banks, and manufacturing firms in Pakistan. PF trusts are the common arrangements taken by the privately held companies to segregate the funds independently of the business operations in order to maintain transparency and stay in line with the FBR policies.
Government employees are entitled to a General Provident Fund (GPF), where:
The employee should address a written request to the accounts department.
Employer checks the eligibility and the contribution of the employee.
Final profit is so computed up to the date of withdrawal.
Payment is made by cheque or transfer.
The contributions made to it by the employer and the profit made on the employee may become subject to taxes in case the employee quits within the first five years of service.
As good as provident funds are, there are certain obstacles:
Most of the employees are not well aware of the PF rules or benefits.
Employers who do not sign up for PF with FBR cut their tax advantages.
There are instances of employer delays in the release of PF amounts once the employees do.
The conservative investments could come at low returns in comparison with other investments.
Pakistan Provident Fund is an important employee financial security tool. With certain advantages that include the presence of a well-regimented savings scheme, the convenience of employer payments, tax advantages, and increased returns over the long term. It guarantees an adequate financial cushion to the employee at the end of employment life, whether in the government or in the corporate sector.
On the part of the employees, knowing about the rules and benefits is important to maximize this scheme. On the part of employers, transparent management of the provident fund with adherence to laid-down laws earns the trust of the employees, especially in generating loyalty.
The Provident fund was one of the most dependable and available saving tools of the working population in Pakistan because the state of personal retirement planning in Pakistan is yet to develop sufficiently.
To register a provident fund in Pakistan, an employer must set up a formal trust under the Trust Act 1882. The trust deed and rules are prepared according to the Employees’ Provident Funds Act, 1958. The trust is registered with the Commissioner of Income Tax for tax benefits and with the relevant provincial labor department. An approved fund must meet the requirements of the Income Tax Ordinance for exemption.
The registration process involves:
Provident fund contributions are calculated as a fixed percentage of the employee’s basic salary. Typically, the employer contributes an equal amount.
For instance, if the employee’s base pay is PKR 50,000 and the contribution rate is 10%, the employee and employer will each contribute PKR 5,000 per month, for a total monthly savings of PKR 10,000.
