A career average revalued earnings (CARE) scheme is a type of defined benefit
arrangement. It is set up by an employer to provide income in
retirement for its employees.
Although the employer is responsible for sponsoring the scheme,
it is run by a board of trustees (with the exception of most public sector schemes). The
Trustees are responsible for paying retirement and death
benefits.
Members contribute to the scheme with the promise of a certain
level of pension. The amount of pension payable is dependent
upon:
- the length of time served in the scheme (known as pensionable service);
- career averaged earnings (known as final pensionable salary) [* see below];
and
- the scheme's accrual rate. The accrual rate is the
proportion of salary that is received for each year of service. So,
if the scheme has an accrual rate of 60, the member will receive
1/60ths of their final pensionable salary for each year of service
completed.
For example: (pensionable service x pensionable
salary) / 60
* A career average scheme matches each year's benefit accrual to
earnings in each year rather than the final years' earnings. The
earnings figure will be uprated in line with prices rather than the
actual increase in earnings.
For example, if the scheme provides a pension calculated as 1/60
of pay for each year of service and the member retires in 2010 with
30 years' service, then to calculate pension, each year's pay will
be uprated with inflation and then aggregated. It will then be
divided by 30 to provide the "average" pay, which in the example
would be multiplied by 30/60 to arrive at the pension.
