Pension vs Gratuity: Difference and Comparison

Money is very important for living. Different countries have their own currencies, which are sequence divided and arranged in order. When people work for someone, they earn money to buy goods, clothes, etc.

This is called salary or pay. But after a certain age, a person gets retired from work or office. Pension and Gratuity are amounts that are given to an employee when they get retire from their work.

Both of these amounts are very much different as Pension is given monthly to a person who gets retired from their office, and the amount given is little in quantity while Gratuity is a lump sum amount paid to the employee after completing five or more years in the same workplace.

Key Takeaways

1. Pensions provide a regular income after retirement, whereas gratuity is a one-time lump-sum payment.
2. Gratuity is given as a reward for long-term service, while pensions are based on salary and years of employment.
3. Both employee and employer contributions fund pensions, while gratuity is employer-funded.

Pension vs Gratuity

A pension is a type of retirement plan that provides employees with a regular income after they retire. The employer funds pensions, although some plans may require employees to contribute as well. Gratuity, also known as a “tip,” is a one-time payment that is made to an employee as a reward for their service. Gratuity is given at the end of an employee’s service.

Pension is mainly given to a government employee or a person who used to work in a government-operated company or office. This pension scheme is for those employees who get retired after a specific period of time. The amount given is mostly scheduled from month to month.

Gratuity is an appreciation gift given to employees who have devoted more than 4 years of faithfulness towards their company. The Gratuity amount depends on the working years of an employee.

And the amount given is provided altogether, not from month to month. In addition to this amount, so many more advantages are provided.

Comparison Table

Parameters of Comparison	Pension	Gratuity
Definition	Pension is an amount given in installments to an employee who gets retired from his or her workplace. It is a monthly installment scheme decided by the government for people of a specific age group.	Gratuity is an appreciation gift or amount given to a companies employee for his or her dedication and years of service.
Amount	The amount is given from month to month or in installments to a person.	The amount given is a lump sum depending on the years of service provided by the employee.
Scheme	It is given according to employees pension scheme launched by the government in 2017.	It is given according to the payment of gratuity act that was framed in 1972.
Minimum service	The minimum work service of an employee should be more or equal to ten years.	For Gratuity, the minimum work service should be five years or more.
Consideration	The term Pension can also be considered as a retirement plan or a departing plan.	The term Gratuity is also considered a gift or an appreciation amount.

What is Pension?

The government launched a pension scheme to enhance their employee’s financial security after his or her retirement. In this scheme, a retired employee is benefited from the fixed amount of money that the government provides from month to month or in instalments.

Pension is only given to an employee who has served more than ten years of their life as a government employee. This scheme is not for non-government employees.

In some places, this scheme is based on the age system in which a specific retirement age is defined, and according to that, a pension is provided.

People can go for the Pension scheme by registering themselves on websites launched by the government. And if they pass all the criteria, they get benefits with the Pension.

What is Gratuity?

The Gratuity Act was launched in 1972, according to which some lumpsum amount of the money is provided by the company to its employees who have worked for four or more years for their company. This Gratuity scheme works both for government and non-government employees.

Gratuity can also be considered an appreciation gift by the company. The Gratuity amount is decided according to an employee’s salary.

Nowadays, in some government jobs, a Gratuity scheme is used instead of a Pension which is a lumpsum amount of money provided instead of an instalment scheme.

People can also nominate heirs to collect their Gratuity money in case they are dead or have an accident. They can nominate their heirs by filing when joining a company.

Main Differences Between Pension and Gratuity

1. Pension is an amount given in instalments to an employee who gets retired from his or her workplace. It is a monthly instalments scheme decided by the government for people of a specific age group. On the other hand, Gratuity is an appreciation gift or amount given by the company to those employees who have served their company for years.
2. The term Pension is also referred to as a retirement plan or departing plan. In contrast, the term Gratuity can also be referred to as a gift or appreciation amount.
3. To be eligible for the Pension scheme, a person should have served a minimum of ten years of service. Whereas to be eligible for Gratuity, an employee should have served equal or more than five years of service.
4. The guidelines followed in Gratuity are taken from the Payment of gratuity act that was framed in 1972. While providing a Pension, the employees’ pension scheme is taken into account.
5. The gratuity amount is given as a lump sum amount to an employee after he or she gets eligible for that. Whereas in Pension, the amount given is scheduled from month to month or in instalments.

References

1. https://ideas.repec.org/b/oxp/obooks/9780199240487.html
2. https://www.sciencedirect.com/science/article/pii/S1053535700000627

Last Updated : 15 July, 2023