Career average revalued earnings (CARE) schemes are a type of defined benefit pension scheme.
Although your employer supports the scheme, in most cases a board of trustees runs it. The trustees are responsible for paying retirement and death benefits.
You contribute to the scheme and it promises you a certain amount of pension at retirement. The amount of pension paid to you usually depends on the following:
- The length of time you have been in the scheme;
- Your average earnings whilst in the scheme; and
- The rate at which your pension benefits builds up - your scheme's accrual rate.
Your earnings for each year that you have been in the scheme will be increased in line with prices and then the average earnings for a year determined. You will get a certain amount of your yearly average earnings for each year you have been in the pension, depending upon the Accrual rate that the scheme uses. The most common accrual rate is 1/60., you will get 1/60th of your final pensionable salary for each year you complete. (In some cases, this will be worked out in complete years, in others years and months, or even years and days).
As an example. If your average yearly earnings is £20,000, and your schemes accrual rate is and you have been in the scheme for 30 years, your pension would be:
£20,000 Averaged Earnings * 30 years’ service * 1/ 60 years accrual rate
= £10,000 pension
If you are evaluating your pension, we strongly advise that you seek professional advice from a fully qualified and regulated Independent Financial Advisor. Pension decisions are usually a major financial decision that requires the appropriate level of advice to make the right choice. In contrast, mistakes can be costly. To arrange for a no obligations, initial free telephone consultation click here.