Private Pensions and Provident Funds
The private pension schemes include provident funds and occupational pension schemes. They are mainly provided by institutions that do not belong to the public sector. The private sector workers may decide to pay voluntarily contributions for a private pension through private insurance companies. The beneficiary my choose to receive the private pension as a lump sum payment or monthly installments in addition to the state pension provided through the General Social Insurance Scheme (GSIS) starting with the official retirement age or earlier.
Supplementary private pension provisions are encouraged through tax incentives by exemption of contributions, investment income and lump-sum gratuities of pension funds and contributions, investment income and lump sum benefits of Provident Funds.
Provident Funds are arrangements that are agreed within the framework of the free collective bargain. They provide defined contribution lump sum benefits to the employees who are covered in these agreements. However, for certain categories of employees (e.g. bank employees, employees of oil companies, government manual workers), the Provident Fund is compared with a defined benefit lump-sum based on the recent salary and the employee receives the higher of the two amounts.
Provident Funds are financed by contributions from employers and employees. Industry-based Provident Funds operate for certain categories of employees, such as construction workers, hotel employees etc. Trade unions also operate multi-employer Provident Funds. However, most of the Provident Funds operate on an enterprise basis and usually cover a small number of members. The Provident Funds have serious weaknesses in terms of the retirement income effectiveness, due to the fact that the members usually receive their entitlements when they change their employers and not when they reach the pensionable age.