Topic: Defined benefit scheme

i) Defined benefit scheme:
Defined benefit scheme refers to a pension scheme where the employee, upon retirement, receives a pension amount based on the length of service and salary, often calculated using the final salary or an average of the last few years’ salaries. The pension amount is predetermined, and the risk is borne by the employer.

ii) Defined contribution scheme:
A defined contribution scheme is a pension plan where the employer commits to making annual contributions, typically a certain percentage of the employee’s salary, into a retirement account. The funds are invested, and upon retirement, the pension amount is derived from the accumulated contributions and the returns on those investments. Unlike the defined benefit scheme, the investment risk is borne by the employee.
(5 marks)