Sunday, January 2, 2011

Defined Benefit Pension Scheme

A defined benefit pension scheme or defined benefit superannuation/retirement scheme is one in which employees are guaranteed a retirement income, e.g. in proportion to their final salary (also known as a final salary scheme). The point is that the benefit is pre-defined, thus the sponsor or underwriter of the scheme is responsible for ensuring that there is enough funds in order to meet the obligations. The opposite is a defined contribution scheme, where the contributions are defined, but the benefit is variable - based on the amount of contributions and investment performance.

Synonyms: Defined benefit

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