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Defined benefits (CARE) schemes

Defined benefit: Career average revalued earnings (CARE) schemes

Career average revalued earnings (CARE) schemes are a type of defined benefit pension scheme that are offered by employers. The benefits at retirement are based on your earnings and length of membership of the scheme.

How CARE schemes work

CARE schemes run in a similar way to defined benefit final salary schemes, but with differences in the way that your ‘pensionable earnings’ are calculated.

A CARE scheme is typically run, on behalf of the employer by the Board of Trustees, who are responsible for all aspects of the scheme. This includes paying out benefits to retired members. Daily management of the scheme is typically done by the Scheme Administrator, who reports to the Board of Trustees.

A CARE scheme normally offers you an income in retirement based on a proportion of your average earnings, after adjusting these for inflation, during the whole period of membership of the scheme.

The pension scheme’s rules will define what is meant by ‘earnings’. For example, some schemes don’t count additional earnings, such as overtime, commission, bonuses or the value of benefits in kind (other benefits that are not paid as cash). The scheme may also only count a proportion of your weekly or monthly wage or salary. The amount of your earnings that are used towards calculating your retirement benefits is often called ‘pensionable earnings’.

As a member, you build up a fraction (the accrual rate) of your career average revalued earnings for each year of membership of the scheme. Typically, this fraction may be 1/60th or 1/80th of your career average revalued earnings (for each year of scheme membership), although other fractions may be used, as specified in the scheme rules, so you should check these.

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