Defined Benefit (DB) Scheme

What is meant by a 'benefit' is generally concerning pensions. A benefit is really just another way of describing either a pension or cash amount or some other sort of reward. If for example free dental care at work is provided that might be described as a 'dental benefit'. If a spouse gets a lump sum on partner’s death this might be described as a 'death benefit'. A pension might be described as a 'retirement benefit'.
A Defined Benefit (DB) Scheme is exactly that, a pension scheme where the benefit (i.e. the pension in most cases) is 'defined' in some way. Therefore it may be helpful to think of this as a "Defined Pension" Scheme. This means the pension that is provided is based on some sort of formula, normally related to salary and service. One quite popular kind of defined benefit scheme is known as a Final Salary scheme. In this sort of scheme a member may be promised a pension of say 1/60th of salary at retirement for each year of service. Note how the pension promised is in no way related to the amount of money put in. In a defined benefit scheme the focus is on the pension not on the contributions paid.

The above is just an example to show what is meant by a Defined Benefit scheme. The essential thing is that in a Defined Benefit scheme the amount of pension (or sometimes cash) available at retirement is defined by a formula usually related to salary and service.

Company Pensions