RetirementFinancial Glossary
Defined Benefit Pension
Definition
A pension plan where the retirement benefit is predetermined based on a formula — typically involving salary, years of service, and a multiplier. Government employees in India receive defined benefit pensions. The employer bears the investment risk, guaranteeing the promised pension regardless of market performance.
Why It Matters
The old pension scheme (OPS) for government employees was a defined benefit plan offering 50% of last drawn salary as lifetime pension. The NPS, which replaced it for employees joining after 2004, is a defined contribution plan where the pension depends on market returns. This fundamental difference is at the heart of the OPS vs NPS debate.