What Is a Defined Benefit Pension Scheme?
A defined benefit scheme promises employees a set pension, leaving the employer to carry the funding risk — and IAS 19 makes the accounting one of SBR's trickiest areas.
A defined benefit pension scheme promises employees a specified pension on retirement, usually based on salary and years of service. Because the payout is fixed by the promise, the employer bears the investment and actuarial risk — the opposite of a defined contribution scheme, where the employer's obligation ends once it pays in.
How does IAS 19 account for it?
IAS 19 requires the employer to recognise a net defined benefit liability (or asset): the present value of the defined benefit obligation less the fair value of the plan assets. The movement in that net position each year is split into three components:
- Service cost (current and past service cost) — recognised in profit or loss.
- Net interest on the net liability or asset — recognised in profit or loss.
- Remeasurements (actuarial gains and losses, and the return on plan assets excluding net interest) — recognised in other comprehensive income and not recycled.
Why students find it hard
The area combines a reconciliation of the obligation, a reconciliation of the assets, and correct routing of each movement between P&L and OCI. Miss the split and you lose easy marks even when your arithmetic is sound.
The reliable way to see whether your pension working scores is to mark a full answer against the official ACCA scheme. The 50% Club shows you which reconciliation and routing marks you earned — the marks candidates most often leave on the table.