Social Security ICSE Class 10: Provident Fund, Gratuity and NPS

What Social Security is about

Weightage: CISCE publishes no chapter weightage. Section A (40 marks) is compulsory, with 1-mark MCQs and short 2-mark answers; in Section B you answer any four of six 10-mark questions.Source: CISCE ICSE Commercial Studies (631) specimen paper structure, 2025, retained for 2027 by the CISCE circular of 9 October 2026

Key concepts

Concept of social security

Social security is the protection that society provides to its members, through public measures and schemes, against economic and social distress caused by the stoppage or reduction of earnings due to contingencies such as sickness, maternity, employment injury, unemployment, invalidity, old age and death of the earning member.

It has two broad forms: (1) Social insurance: contributory schemes in which workers and employers (sometimes the government) pay regular contributions and benefits are paid when the risk occurs, such as the Provident Fund. (2) Social assistance: non-contributory help given by the government from its own funds to the needy, such as old-age pensions for the poor.

Importance: it gives workers a sense of security, raises morale and productivity, reduces labour turnover, attracts good workers, protects families from poverty when the earner dies or retires, and is a mark of a welfare state.

Worked example

(2 marks) What is meant by social security?

Try it first, then show the solutionSolution

1. Protection provided by society/employers/state to workers - 1 mark.
2. Against loss of income due to old age, sickness, injury, unemployment or death - 1 mark.

Answer: Social security means the protection provided by society, the state and employers to workers against loss or reduction of income caused by contingencies such as old age, sickness, injury, unemployment or death of the earning member.

Provident Fund

A Provident Fund (PF) is a compulsory savings scheme for employees in which a fixed percentage of the employee's basic wages (with dearness allowance) is deducted every month, and the employer contributes an equal percentage. The usual rate is 12% each (10% in some establishments). The total is deposited in the employee's PF account and earns interest every year.

Features: both employee and employer contribute; it builds a lump sum that is paid to the employee at retirement or on leaving service, or to the nominee on the employee's death; partial withdrawals or advances are allowed for purposes such as housing, education, marriage or illness; it encourages compulsory saving. In India it is administered for most organised-sector workers by the Employees' Provident Fund Organisation (EPFO).

Worked example

(1 mark) A social security scheme in which both employer and employee contribute a fixed percentage of the employee's basic wages every month is:
(a) Gratuity
(b) Provident Fund
(c) Pension
(d) Bonus

Try it first, then show the solutionSolution

1. Equal contributions by both into the employee's account = Provident Fund.

Answer: (b) Provident Fund.

Gratuity

Gratuity is a lump-sum payment made by the employer to an employee in recognition of long and continuous service, when the employee retires, resigns or leaves service after a minimum period (usually five years of continuous service). It is also paid to the nominee if the employee dies, or to the employee on disablement, even before five years.

Features: it is paid by the employer alone; the employee makes no contribution; the amount depends on the last drawn wages and the number of completed years of service (usually 15 days' wages for every completed year); it is a reward for loyalty and gives the employee a lump sum to start retired life.

Worked example

(2 marks) What is gratuity?

Try it first, then show the solutionSolution

1. A lump sum paid by the employer alone on retirement/resignation after long continuous service - 1 mark.
2. Based on last wages and years of service; reward for long service; paid to nominee on death - 1 mark.

Answer: Gratuity is a lump-sum amount paid by the employer, without any contribution from the employee, as a reward for long and continuous service, when the employee retires or leaves after the minimum period (or to the nominee on death); it depends on the last drawn wages and years of service.

National Pension Scheme (NPS)

The National Pension Scheme (also called the National Pension System) is a voluntary, contribution-based retirement savings scheme of the Government of India, regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is compulsory for most government employees who joined after 2004 and open to other citizens of India, resident or non-resident, within the prescribed age limits.

Features: (1) The member contributes regularly (employers may also contribute) into an individual account identified by a permanent retirement account number. (2) Two accounts: Tier I, the main pension account, which is mandatory and has restricted withdrawals; Tier II, an optional voluntary savings account from which money can be withdrawn freely. (3) The money is invested by professional pension fund managers in a mix of equity, corporate bonds and government securities chosen by the member. (4) At retirement (60 years), part of the accumulated amount can be taken as a lump sum, and a prescribed minimum share must be used to buy an annuity that pays a regular monthly pension (PFRDA sets these shares by regulation and changed them in 2025, so learn the idea rather than a percentage). (5) It is portable across jobs and places.

Worked example

(1 mark) A scheme open to any citizen of India, resident or non-resident, with a mandatory Tier I account and an optional Tier II account, is the:
(a) Provident Fund
(b) Gratuity
(c) National Pension Scheme
(d) Group insurance

Try it first, then show the solutionSolution

1. Tier I and Tier II accounts are features of the NPS.

Answer: (c) National Pension Scheme.

Comparing PF, Gratuity and NPS

(1) Who contributes: PF - employee and employer; Gratuity - employer only; NPS - mainly the member (employer may also contribute).
(2) What is received: PF - lump sum with interest; Gratuity - lump sum based on service; NPS - partly lump sum, with a required share converted into a monthly pension (annuity).
(3) Condition: PF - available on retirement or leaving, with partial withdrawals during service; Gratuity - usually after five years of continuous service; NPS - at 60, with limited early exit.
(4) Purpose: PF - compulsory saving; Gratuity - reward for long service; NPS - regular income in old age.
(5) Coverage: PF and Gratuity - employees of covered establishments; NPS - government employees and any eligible citizen.

Worked example

(2 marks) Give two differences between Provident Fund and Gratuity.

Try it first, then show the solutionSolution

1. Contribution: PF by both employee and employer; gratuity by the employer alone - 1 mark.
2. Purpose/condition: PF is compulsory saving paid on leaving at any time; gratuity is a reward for long service, usually after five years - 1 mark.

Answer: (1) Both employee and employer contribute to the Provident Fund, whereas gratuity is paid by the employer alone. (2) The Provident Fund is a compulsory saving available whenever the employee leaves, whereas gratuity is a reward for long service, usually payable only after five years of continuous service.

Social Security in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Topics in this chapter

• Provident Fund, Gratuity and the National Pension Scheme

Social Security: key facts

Social security

Protection against loss of income: old age, sickness, injury, unemployment, death

Social insurance (contributory) + social assistance (non-contributory).

Provident Fund

Employee % + equal employer % of basic wages each month + interest

Usually 12% each.

Gratuity

Employer only; lump sum after long service (usually 5+ years)

About 15 days' wages per completed year.

NPS

Tier I (mandatory pension) + Tier II (optional savings); part must buy an annuity at exit

Regulated by PFRDA; open to citizens, resident or non-resident.

How the board asks Social Security

The question patterns to expect, and the method that works for each.

Tricks to remember Social Security

Short memory aids. Say each one aloud once, then use it on a question the same day.

• Who pays?

  PF = Pair pays (employee and employer); Gratuity = Gift from the employer; NPS = Nest you build yourself.

  Use it when: Telling the three schemes apart.

• OSIUD risks

  Old age, Sickness, Injury, Unemployment, Death of earner.

  Use it when: Concept of social security.

Social Security: board-level solved questions

Ordered from board level to HOTS. Cover the solution, write your own, then compare step by step.

Case-study practice (Section B style)

Read the situation, then answer every part. In the board paper this is a 10-mark question split into 2 + 3 + 5 marks.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Where students lose marks in Social Security

The slips examiners see most often, and what to write instead.

• ✗Mistake: Choosing Pension when both employer and employee contribute

  The 2024 examiners reported candidates chose Pension instead of Provident Fund.

  ✓Do this: Equal monthly contributions by both = Provident Fund.

  Usually costs: 1 mark.

• ✗Mistake: Not recognising the NPS from Tier I and Tier II

  The 2025 examiners noted poor understanding of the schemes.

  ✓Do this: Tier I (mandatory) and Tier II (optional) belong only to the NPS.

  Usually costs: 1 mark.

• ✗Mistake: Saying employees contribute to gratuity

  Students mix it with PF.

  ✓Do this: Gratuity is paid entirely by the employer.

  Usually costs: 1 mark.

• ✗Mistake: Writing about the Acts or dropped schemes

  Older books cover group insurance, maternity benefit and the Acts.

  ✓Do this: For 2027 write only the concept, PF, Gratuity and NPS; Acts are not required.

  Usually costs: Time, and no marks.

Practice questions on Social Security

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

1. Q1 · 1 mark · MCQBoard level

   In which scheme does the employee make no contribution?
   (a) Provident Fund
   (b) Gratuity
   (c) National Pension Scheme
   (d) All of these

   Hint

   Employer's reward.

   Answer

   (b) Gratuity.

2. Q2 · 1 mark · MCQHarder board level

   The regulator of the National Pension Scheme is:
   (a) RBI
   (b) SEBI
   (c) PFRDA
   (d) EPFO

   Hint

   Pension regulator.

   Answer

   (c) PFRDA (Pension Fund Regulatory and Development Authority).

3. Q3 · 2 marks · Very short answerBoard level

   What is the Provident Fund?

   Hint

   Both contribute.

   Answer

   The Provident Fund is a compulsory savings scheme in which a fixed percentage of the employee's basic wages is deducted every month and the employer contributes an equal amount; the fund earns interest and is paid to the employee on retirement or leaving service, or to the nominee on death.

4. Q4 · 2 marks · Very short answerHarder board level

   Distinguish between social insurance and social assistance.

   Hint

   Contribution.

   Answer

   Social insurance is contributory: workers and employers pay contributions and receive benefits when a risk occurs (e.g. Provident Fund). Social assistance is non-contributory: the government gives help from its own funds to the needy (e.g. old-age pension for the poor).

5. Q5 · 2 marks · Short answerHOTS / competency

   Why is gratuity said to encourage loyalty?

   Hint

   Five years; years of service.

   Answer

   Because it is usually payable only after five years of continuous service and grows with every completed year, employees have a reason to stay with the same employer longer.

6. Q6 · 2 marks · Very short answerBoard level

   State two features of the National Pension Scheme.

   Hint

   Tiers; annuity.

   Answer

   (1) It has a mandatory Tier I pension account and an optional Tier II savings account. (2) At exit at 60, a required part of the accumulated amount must be used to buy an annuity that pays a monthly pension; the rest can be taken as a lump sum.

7. Q7 · 5 marks · Long answerHarder board level

   Explain the importance of social security for employees and employers (five points).

   Hint

   Both sides.

   Answer

   (1) Employees feel secure about old age and emergencies. (2) Their families are protected if the earner dies or is disabled. (3) Secure workers have higher morale and productivity, which benefits employers. (4) Good schemes attract and retain skilled workers, reducing turnover and recruitment costs. (5) Fewer disputes over benefits improve industrial relations.

8. Q8 · 2 marks · Short answerHOTS / competency

   Suppose an employee leaves his job after three years. Will he get his Provident Fund and gratuity? Explain.

   Hint

   Five-year condition.

   Answer

   He gets his Provident Fund balance (his and the employer's contributions with interest), since PF is his savings. He usually does not get gratuity, because it requires at least five years of continuous service (except in case of death or disablement).

9. Q9 · 5 marks · Long answerHarder board level

   Write a short note on the National Pension Scheme.

   Hint

   Who, how, tiers, exit.

   Answer

   The National Pension Scheme is a contribution-based retirement scheme of the Government of India regulated by PFRDA, compulsory for most government employees who joined after 2004 and open to other eligible citizens, resident or non-resident. Members contribute regularly to an individual account invested by professional fund managers in equity and bonds. It has a mandatory Tier I pension account and an optional Tier II savings account. At 60, a required part of the amount is used to buy an annuity giving a monthly pension and the rest may be taken as a lump sum. It is portable across jobs.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1. 1.Who contributes to the Provident Fund?Show answer

   Both employee and employer.

2. 2.Who pays gratuity?Show answer

   The employer alone.

3. 3.Which NPS account is optional?Show answer

   Tier II.

4. 4.Minimum service usually needed for gratuity?Show answer

   Five years of continuous service.

5. 5.Name two contingencies covered by social security.Show answer

   Old age and sickness (also injury, unemployment, death).

Quick revision checklist

The night before the exam: can you do each of these without looking?

• ☐Social security: protection against loss of income from old age, sickness, injury, unemployment, death.
• ☐PF: employee + employer (usually 12% each), interest, lump sum on leaving.
• ☐Gratuity: employer only, after long service (usually 5 years), lump sum.
• ☐NPS: PFRDA; Tier I mandatory, Tier II optional; part of the corpus buys an annuity at 60.
• ☐Acts, group insurance and maternity benefit are not in the 2027 syllabus.

Social Security: frequently asked questions