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Finance & Accounting
Pages 6 (1506 words)
Finance and Accounting 1.What are defined benefit and defined contribution pension schemes? Compare them from the perspective of a member of a pension scheme. Defined Benefit Pension Scheme The distinction feature of defined benefit pension scheme is in the procedure of payment and the inputs of factors that determines the amount of money that a pensioner will receive…
212). There are several factors that determine the amount of money that each retiree receives. This means that the fact that the defined benefit pension scheme promotes the payment of fixed amount of money every month does not mean that all organizations agree to pay a fixed amount of money to all their employees. Even within the same organization, not all employees receive the same amount of money. The actual contract of fixed amount payment is therefore between the employer and each employee; rather than between the employer and all members on the staff. To create a difference between how much each employee would take upon retirement, there are a number of mechanisms used to calculate the monthly. The commonly procedure is for employers to multiply the number of years each employee worked by a constant pound value (Diamond and James, 1985, p.12). For example an employee may choose to multiple the number of years by ?120. In this case, an employee who worked for 20 years will receive 20 x 120 which is equal to 2400 every month. Defined Contribution Pension Scheme Unlike the defined benefit pension, the defined contribution pension scheme does not guarantee a fixed monthly amount of money. ...
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