defined-benefit pension scheme

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An occupational pension scheme in which the rules specify the benefits to be received on retirement and the scheme is funded accordingly. The benefits are normally calculated on a formula incorporating years of service and salary levels (see final salary scheme). Accounting for pension costs poses a number of difficulties for accountants; the current regulations are set out in Financial Reporting Standard 17, Retirement Benefits, although International Accounting Standard 19, Employee Benefits, should also be consulted.

In recent years rising costs have led many companies to close their existing DB schemes to new employees, who are obliged to join defined-contribution pension schemes.

Subjects: Financial Institutions and Services — Accounting.

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