CARE
CARE from 2014
The Local Government Pension Scheme will be a
Career Average Revalued Earnings (CARE) scheme
for service earned from April 2014.
However, in a CARE scheme:
• our pensionable pay for each year is used to
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calculate your pension for that year;
• ach year’s pension is then revalued (increased)
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by inflation, then
Why CARE?
The method is seen as a way of providing employers
with greater stability of costs whilst still maintaining
a valuable defined benefit arrangement; the current
unknown final salary factor is being replaced with
a revaluation mechanism. CARE schemes allow
members with fluctuating career earnings to benefit
from those earnings in their pension calculation and
they are more compatible with the increasing flexible
working patterns of today.
Whether benefits will be higher or lower in a CARE
scheme than a final salary scheme, will depend
on how an individual’s earnings increase during
their career; the benefit will be very similar where
earnings increase roughly in line with the revaluation
index used for the CARE scheme.
In a final salary scheme, your pensionable pay at
the end of your period of membership is used in your
pension calculation. Normally this is your pay in your
final year of work.
• ach year’s revalued pension is then added
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together to arrive at the total pension;
building up a Pension Account every year.
Example - how pensions are worked out
Chris’s Pension Account
Scheme
Year
Actual
Pay
Cost of Living
Adjustment
1 1st April 2014 to
31st March 2015
£18,000
3%
2 1st April 2015 to
31st March 2016
£18,500
3.2%
Scheme Opening Pension Total Cost of
Updated
Year Balance build up
Account
living Total
in year
31 March adjustment Account
1
£0.00 £18,000/49
£367.35
3% =
= £367.35 £11.02
£378.37
2
£378.37 £18,500/49
£755.92
3.2% =
= £377.55 £24.19
After the second year of membership Chris builds up
a pension of £377.55, which is added to the pension
already in his Pension Account, giving a total of
£755.92. As before the amount is then revalued by
inflation to give a pension at the end of year two
of £780.11. This amount would then become the
opening balance for year three ……. and the same
calculation would take place for as long as Chris was
a member of the Scheme.
After Chris’s first year of membership in the new
scheme he has a pension of £367.35. To ensure it
maintains its value the pension is then revalued by
inflation, so in this case 3%. So at the end of the first
year Chris has £378.37 banked in his Pension Account.
£378.37 then becomes the opening balance for his
Pension Account for the next scheme year.
Advantages of a
CARE scheme
A CARE scheme is particularly advantageous to
active members whose:
• pensionable earnings fluctuate
significantly,
• salary increases are limited.
Pension Account Modeller
A Pension Account Modeller has been designed on
the LGPS website to help members understand how
Pension Accounts work. The Modeller only shows
how a pension builds up from April 2014.
The Modeller allows you to input pensionable
pay details, assumed inflation and assumed pay
increases to see how the value of an LGPS pension
builds over the number of years you choose.
However please note the modeller is not designed to
provide you with an estimate of your benefits.
www.lgps2014.org
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For each year of membership, you will build up a
pension of 1/49th of your pensionable pay for that year.
The amount of pension you build up is added to your
Pension Account at the end of each scheme year.
Earning a pension of 1/49th (2.04%) of your salary is
more than the 1/60th (1.67%) you earn in the current
LGPS.
1/49th
A separate Pension Account has to be opened in
relation to each separate employment. For example
a member with two jobs will build up two separate
Pension Accounts.
£780.11
From April onwards you will need to be familiar with the
term Pension Account as the above example shows.
Pensions Build-Up
1/60th
Example
1 year x 1/49 x £16,000 =
1 year x 1/60 x £16,000 =
£326.53
£266.67
Inflation-proofing
The pension you build up each year will be revalued
with inflation so that it keeps up with the cost of living.
The amount of inflation to be added will be based on
an inflation index notified by the HM Treasury, which
is currently the Consumer Price Index (CPI).
Pension for year 1 x revaluation
table showing cpi for THE
last five years
YEAR
CPI
(%)
2010 2011 2012 2013 2014
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