A defined contribution plan is a pension plan under which fixed contributions are paid into a pension
fund and the company has no legal or constructive obligation to pay further contributions even if the
fund does not hold sufficient assets to pay all employees the benefits relating to employee service in
the current and prior periods.
Contributions to defined contribution plans are recognised as employee benefit expense when they
are due. If contribution payments exceed the contribution due for service, the excess is recognised as
a prepayment.
Defined benefit pension obligation
Typically defined benefit plans define an amount of pension benefit that an employee will receive on
retirement, usually dependent on one or more factors such as age, years of service and
compensation.
The liability recognised in the balance sheet in respect of defined benefit pension plans is the present
value of the defined benefit obligation at the reporting date minus the fair value of plan assets. The
defined benefit obligation is measured using the projected unit credit method. The present value of the
defined benefit obligation is determined by discounting the estimated future payments by reference to
market yields at the reporting date on high-quality corporate bonds that are denominated in the
currency in which the benefits will be paid, and that have terms to maturity approximating to the terms
of the related pension liability.
Actuarial gains and losses are charged or credited to other comprehensive income in the period in