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Provident Fund

The Provident Fund is an alternative saving scheme for retirement widely recognized for more than
20 years, even prior to the enactment of the Provident Fund Act B.E.2530. By law, the Ministry of Finance
is in charge of and empowered to regulate and supervise management of provident funds.

Initially, the Fiscal Policy Office was appointed as fund registrar. Later on, amendments were made
in the Provident Fund Act B.E.2530 and the Securities and Exchange Act B.E.2535, resulting in the
stipulation that the Securities and Exchange Commission, which at the time had already supervised and
regulated mutual and private funds, was assigned the role of provident fund registrar as of March 30,
2000.

Contribution and Benefit Payout


A provident fund is established under a mutual agreement between the employer and the employee
with the purposes of offering fringe benefits to employees and promoting saving for retirement. Voluntary
contributions range from 2% to 15% on the condition that employer contributions must be equal to or
higher than those of the employees. Termination of memberships is decided by either one of the following
three factors: (1) retirement at 55 or older as stipulated in the governing rules, (2) resignation or (3) death.
Upon membership termination, members are entitled to a full amount of benefit package. Portability
among provident funds is allowed by law and further amendments are in process to permit retirees to
receive benefits in the form of installments.

Tax Benefit

Money flows into and out of the provident fund can be divided into three streams: contributions,
returns on investment and benefit payout.

Countries employ different tax policies pertaining to these streams. Some apply the Taxation-
Exemption-Exemption (TEE) system where contributions are subject to taxation while the other two flows
are not. Others may choose the EET system where only benefit payout is tax levied.

In Thailand, the government opts for tax exemption on all of the three streams, i.e., the EEE system,
to offer a full incentive for earning retirement savings through provident funds.

Under the EEE system, tax exemptions are structured as follows:


1. Contributions
1.1 Employee contribution: The actual sum not exceeding 10,000 baht per annum is tax
deductible. The excess of 10,000 baht but not more than 290,000 baht per annum is exempted upon
condition that it does not exceed 15% of the wage.
1.2 Employer contribution: The actual sum is deductible as expense but not exceeding 15% of
the wage.

2. Return on investment
The whole sum is tax-exempted.

3. Benefit payout
The whole sum is tax-exempted upon condition that the member reaches his or her retirement
age as stipulated in the company article but not less than the age of 55 and has maintained a continued
membership for not less than five years.

The provident fund is set up to provide adequate saving after retirement and the tax incentive
scheme is granted to support such purpose. For those who do not maintain membership until retirement,
therefore, will not gain full tax benefits or not at all.

Employer
Employer's contribution is deductible as expenses for corporate income tax. However, the
deductible amount must not exceed 15% of the wage.

Fund
Returns on investment are tax exempted.

Employee

Case 1: Termination of employment with employment period of less than 5 years


The total benefit is included in the taxable income:

Total benefit = the employer’s contribution


+ returns on investment from the employee’s contribution
+ returns on investment from the employer’s contribution

Case 2: Termination of employment with employment period of more than 5 years


Members can choose either to include the total benefit in the calculation of the taxable income or to
separate tax payment for the specific amount, in which case the tax calculation is as follows:

Taxable Amount = [ Total Benefit Received – ( 7,000 x Years of Employment ) ]*0.5

NOTE: only an employment period of at least 183 days is counted as one year of employment.

Case 3: Termination of membership during employment


The total benefit is included in the taxable income.

To assess your taxable income for your accrued benefits in the provident fund,
try our tax calculator.
In case of getting a new job, study how to reserve your benefits during job change.

Set Up a Provident Fund

To set up a provident fund, six necessary steps must be taken in the following order:

1. Campaign for Prospective Members

2. Election and Appointment of Fund Committee

3. Selection and Appointment of Management Company

4. Signing Contract with the Appointed Management Company

5. Fund Registration

6. Fund Management and Reports

1.
1. Campaign for Prospective Members

Setting up a provident fund requires, first of all, mutual cooperation between the employer and its
employees. While the former facilitates knowledge enhancement and better understanding, the latter or
potential fund members should study their own savings patterns in parallel with the rights and benefits,
particularly tax incentives, of provident fund investment.

Campaigning for a provident fund can come in any flexible formats that suit employees’
characteristics. Many common approaches such as printed materials, seminars and Q&A sessions
regarding the importance and mechanism of the provident fund, help to elevate employees’ awareness of
retirement savings.
2.
2. Election and Appointment of Fund Committee

Once the employer and the employees implant a mutual understanding of provident fund, they
should be ready to reach an agreement to establish one that will best serve both parties. The next
preliminary step is to appoint a fund committee to supervise the fund management. Under the Provident
Fund Act B.E. 2530, the fund committee must comprise representatives elected by the employees and
those appointed by the employer.
3.
3. Selection and Appointment of Management Company

The fund committee is authorized to appoint a management company. The committee is


recommended to go through a selection process before making a final decision. To view selection criteria,
please refer to selecting an asset management company.

Other professional service providers will also be engaged in fund management to comply with the
mandate that provident fund assets must be segregated from those of the employer’s and the appointed
management company’s. Such qualified service providers, i.e., “custodian” and “auditor” must obtain a
license to perform their respective tasks from the Office of the Securities and Exchange Commission (SEC).
The custodian has duties to take custody and ensure safekeeping of provident fund assets. The auditor has
duties to audit and verify fund financial reports. In addition, the management company may delegate
administrative duties to “fund administrator” whose duties include collecting contribution, registering
members and disseminating semi-annual statements to members.
4.
4. Signing Contract with the Appointed Management Company

The duration of a management contract should be long enough to accommodate a provident fund’s
purpose of long-term investments for retirement savings. In addition, frequent changes of management
companies should be avoided as they may result in discontinuance of investment policies and
mismanagement of assets/liabilities, which will lead to short-term benefits and possibly unachieved long-
term goals. The current regulation requires a minimum management term of at least two years.

Before signing a management contract, the fund committee should be cautious to protect the best
interest of the fund members.
5.
5. Fund Registration

A contracted management company should act as a coordinator for the execution of fund
registration or fund article amendment. There are two forms of provident funds as follows:
1) Single Fund: One provident fund for one employer whose fund size is relatively large.
2) Pooled Fund: One provident fund for multiple employers whose fund size ranges from small-to
medium-sized.
A pooled fund article consists of two parts, i.e., general conditions for all employers and specific
conditions for
individual employers.
6.
6. Fund Management and Reports

Contribution remittance and member records


Employer may assign the personnel department or the finance department to take responsibility for
member records for contribution collection. Employer is bound to remit contributions into the fund within
three business days after the date of wage payment. A violation would result in a monthly surcharge of 5%
of the delayed amounts.

Investment
Contributions remitted to the fund will be managed by one or more management companies under
the supervision of the fund committee to ensure that the fund manager will invest in accordance with the
fund management contract. The SEC has also extended the concept of “employee’s choice” to provide
members with an opportunity to choose an investment policy that best suits their own risk tolerance and
return expectations. Nevertheless, whether or not this concept can be successfully implemented depends
on the members’ awareness and understanding of capital market investment.

NAV Calculation
The net asset value (NAV) of the fund is calculated upon the mark-to-market (MTM) practice. Market
prices of different assets in the portfolio such as stocks and bonds determine the fair value of fund assets.
The fund committee and the management company agree on the frequency of trade dates that must take
place at least once a week. The NAV – initially assessed by the management company – is updated upon a
specified trade date and verified by an NAV verifier to ensure accuracy.

Reports
The management company provides the fund committee with monthly and annual reports on the
investment portfolio and returns. Members receive semi-annual statements of their contributions and
benefits. Members’ queries concerning the fund management can be made through the fund committee.

History of the Fund

The Fund was established on 1 January 1932 as a non-contributory fund, and Eskom (then
known as the Electricity Supply Commission) carried all the expenses. The scheme provided a
small pension payable at the age of 60 years, or a lump sum benefit on death prior to that age to
the beneficiaries of the deceased.

The Commission purchased the Victoria Falls Power (VFP) Undertaking in 1948. VFP employees
were members of a non-contributory Legal and General Scheme, the "VFP Pension and Life
Assurance Scheme" or the "Amended Scheme". The Commission decided to introduce a new
contributory scheme to be known as the "Electricity Supply Commission Pension and Provident
Fund", which was established on 1 January 1950. The Fund's first registered office was the Mine
Workers Union Building in Johannesburg.

On 1 January 1952, the rules of the Fund were amended to provide for a retirement age of 63
years, and on 1 January 1964, the retirement age was increased to 65 years.

On 21 April 1958 the Fund was registered as the Escom Pension and Provident Fund. On 19 May
1962 the Fund was registered as the Electricity Supply Commission Pension and Provident Fund
in terms of section 4 (4) of the Pension Funds Act.

On 1 July 1976 the rules of the Fund were amended to provide for the admission of all race
groups as members of the Fund, with the provision that those employees who earned less than
R2000 per annum had to serve for a qualifying period of three years before they could be
admitted as members. Recognition of previous service was funded by the Commission. Prior to 1
July 1976, benefits were paid in respect of long service for Black and Coloured people who died
or retired. Such benefits were paid by the Commission, and not by the Fund. Since 1981
membership has been compulsory for all permanent new employees with no distinction between
race, creed or colour.
On 24 February 1988, the Fund altered its name to the "Eskom Pension and Provident Fund"
under section 12(4) of the Pension Fund’s Act (No 24 of 1956).