The correct answer is: B. Under Defined Contribution scheme, pension paid was not linked to investment performance of the fund
A defined contribution plan is a retirement plan in which the employer and employee contribute to a fund, and the amount of the benefit at retirement is based on the amount of money in the fund. The investment performance of the fund is not guaranteed, so the amount of the benefit at retirement can vary depending on the performance of the investments.
A defined benefit plan is a retirement plan in which the employer promises to pay a specified monthly benefit at retirement. The amount of the benefit is usually based on the employee’s salary and years of service. The investment performance of the fund is not guaranteed, so the employer may have to make up any shortfall if the fund does not earn enough money to cover the promised benefits.
Here is a brief explanation of each option:
- Option A: Under Defined Benefit scheme, pension paid was linked to investment performance of fund. This is incorrect. Under a defined benefit plan, the employer promises to pay a specified monthly benefit at retirement. The amount of the benefit is usually based on the employee’s salary and years of service. The investment performance of the fund is not guaranteed, so the employer may have to make up any shortfall if the fund does not earn enough money to cover the promised benefits.
- Option B: Under Defined Contribution scheme, pension paid was not linked to investment performance of the fund. This is correct. Under a defined contribution plan, the employer and employee contribute to a fund, and the amount of the benefit at retirement is based on the amount of money in the fund. The investment performance of the fund is not guaranteed, so the amount of the benefit at retirement can vary depending on the performance of the investments.
- Option C: Both A & B. This is incorrect. Option A is incorrect, and Option B is correct.
- Option D: None of the above. This is incorrect. Option B is correct.