Career Average Revalued Earnings (CARE) scheme

CARE Schemes provide a pension based on your earnings averaged over the duration of your membership of the scheme – unlike a final salary scheme where the pension is based on your earnings just before you retire.

In a CARE scheme, a defined level of pension is built up each year – for example, 1/60ths – based on the your earnings in that year.

The pension built up in that year is then revalued, year-by-year, to protect it from inflation.  This process of building up annual pension and revaluation continues up to retirement.

The most common method of revaluation is to link the pension to price inflation capped at 5% a year or lower.

CARE schemes have the benefit for employers of a less open-ended cost commitment than final salary schemes.  This is because a big salary increase in one year won’t result in a big increase in total pension costs.

Generally speaking, CARE schemes provide a better pension if your highest earnings are in the middle years of your career instead of towards the end.

They are also suitable if you want to move from full-time to part-time or lower paid work at the end of your working life.

However, final salary pension schemes are better than CARE schemes for people who have promotions and earn the most in the years just before retirement.