Gratuity vs Pension in Pakistan: What's the Difference?

Both gratuity and pension are important retirement benefits, but they serve different purposes and have distinct characteristics. Let's explore the key differences.

What is Gratuity?

Gratuity is a one-time lump-sum payment made to an employee upon leaving a job after completing a minimum period of service (usually one year). It's a statutory benefit under Pakistani law.

What is Pension?

Pension is a regular monthly payment made to retired employees throughout their retirement. In Pakistan, this can come from government pension schemes, EOBI (Employees' Old-Age Benefits Institution), or private pension funds.

Key Differences

1. Payment Structure

• Gratuity: One-time lump sum payment
• Pension: Regular monthly payments for life

2. Eligibility

• Gratuity: Minimum 1 year of service
• Pension: Typically requires 10-25 years of service, depending on the scheme

3. Purpose

• Gratuity: Reward for service rendered; can be received at any termination
• Pension: Financial security during retirement years

Can You Receive Both?

Yes! Gratuity and pension are not mutually exclusive. Many employees receive both benefits upon retirement. The gratuity provides immediate financial relief, while the pension ensures ongoing income security.

Which is Better?

This isn't an either-or question. Both serve different purposes in your financial planning. Gratuity helps with immediate expenses or investments upon retirement, while pension provides long-term financial stability. Ideally, you should plan to receive both.