Under a defined benefit scheme, benefits are defined in advance according to a prescribed formula. For example: A scheme may guarantee a pension of 1/60 of final salary for each year of service with a maximum of two-thirds of final salary upon completion of 40 years service.

A defined benefit scheme is therefore attractive to employees as they can anticipate what their retirement benefit will be as a percentage of their final salary. However, the ultimate cost of this scheme is unpredictable as it depends on the level of benefits provided and the experience of the scheme, in terms of both financial factors (such as investment returns achieved, level of salary increases awarded etc) and demographic factors (such as employee turnover).

An actuarial valuation is carried out every 3 years to examine the financial position of the scheme, to review the experience of the scheme since the previous valuation and to recommend a contribution rate for the following 3 years.

The recommended contribution rate aims to provide a reasonable balance between ensuring that there will be sufficient funds in the scheme when the members reach retirement age and avoiding the employer tying up excessive resources in the scheme.

A defined benefit scheme must be accounted for under IAS19 and we provide the necessary services for the preparation of the relevant financial statements.