How a CARE Scheme Works

As a result of the Hutton Report the principal recommendation is to retain a 'defined benefit' pension scheme but to change the way in which pension benefits are calculated away from a final salary basis (currently number of years' service times 1/60th of your final pensionable pay) to a Career Average Revalued Earnings ("CARE") basis.

'CARE' schemes work by building up an amount of pension year on year based on a percentage of the member's pensionable pay in each year of scheme membership. To reflect the effects of inflation, the pension earned will be re-valued upwards each year in-line with an index. Lord Hutton has suggested that this revaluation should be in-line with the growth in national average earnings which historically has been higher than inflation.
Pensions in payment will continue to be increased annually in-line with changes in the Consumer Price Index or such other measure of inflation as the Government may decree from time to time.

It is important to note that Lord Hutton recommends that pension rights already accrued (i.e. earned) up to the point that the scheme's benefit structure changes should be protected and that these benefits that have already been earned continue to be linked to your final salary.

It is proposed that the CARE scheme will be introduced from 1 April 2014.

CARE - How it Works

An example of how a CARE scheme works can be accessed here.

You can also visit the following pages of this website for further information: