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CARE schemes

Career Average Revalued Earnings Schemes (known as CARE schemes) are a form of defined benefit pension arrangement adopted by employers seeking greater costs control than may be achieved under a traditional final salary scheme.

For an employer looking to move away from its final salary arrangement, CARE schemes are generally perceived as a less radical and more employee friendly benefit to offer than a defined contribution scheme.

The benefit which accrues each year under a CARE scheme is based on “building blocks” of pension. A member’s pensionable earnings in that year are multiplied by an accrual percentage (e.g. 1.25%) or a fraction (e.g. 1/80th). Each building block is then revalued during the period up to retirement by reference to an index such as the Consumer Prices Index. Some CARE schemes also allow for average rates of salary growth.

Why CARE schemes?

• CARE schemes are particularly valuable for part-timers, for employees whose salary remains steady throughout their careers or for those whose salary fluctuates from year to year.
• Employers gain from controlled costs as the benefits due from the scheme do not depend directly on pay at retirement. There is therefore more certainty on the liabilities under the scheme.
• The investment risk is shared between employer and employee.

Author: Georgina Beechinor