Defined Benefit Pension
A defined benefit pension is a type of pension plan that provides a guaranteed retirement income to the employee based on a formula that takes into account the employee’s salary and length of service. This type of pension is sometimes referred to as a “final salary” pension.
In a defined benefit pension, the employer assumes the responsibility for investing the pension fund and for providing a predetermined level of retirement income to the employee. The amount of the retirement benefit is typically based on a formula that takes into account the employee’s salary and length of service, as well as other factors such as the employee’s age at retirement.
Defined benefit pensions are becoming less common in the UK as more employers move towards defined contribution pension plans, which provide a retirement benefit based on the performance of the investments in the pension fund. Defined benefit pensions offer more security to the employee, as the retirement benefit is guaranteed, but they also carry more risk for the employer, as the cost of providing the retirement benefit can be difficult to predict and may be affected by changes in investment performance and other factors.