A Career Average Revalued Earnings (CARE) scheme is a form of ‘Defined Benefit (DB)’ pension scheme where the value of pension income received is a function of pensionable earnings in each (and every) year that one is a member of the scheme (in contrast to a ‘Final Salary’ DB scheme).
A CARE scheme calculates one’s pension using the following formula:
Pension = Accrual Rate x Pensionable Pay
The pensionable pay for a given year of membership is used to calculate a pension benefit amount for that particular year. The value of that benefit is then revalued each year (to protect against inflation), up until the commencement of income payments. To reiterate, the formula is applied to one's pensionable pay in each-and-every year of membership; the individual pension amounts are summed to arrive at the total pension that will be payable by the scheme (taking account of revaluation).
To get started, make sure you are at the Dashboard, then select the '+' button, the Pensions tile and then Final Salary / CARE Pension.
Note: AdviserGo has an Inline help feature, which provides relevant help topics as you build a plan in AdviserGo. Inline help will assist you with entering information into the fields, will give further information to help you understand how it works and provide access to further assistance. Inline help.
Please note that fields marked with an asterisk (*) need to be completed. Working our way down the page, from top-to-bottom, start by selecting the Owner (i.e., the scheme member) from the ‘drop-down’ menu.
Name: Enter a Name (i.e., label or brief description) for the scheme. Note: The label you choose must be unique within the plan.
Status: For an individual who is currently accruing benefits within the DB scheme, ensure the drop-down menu is set to Active.
Linked Employment: Click into this field and select the relevant employment. The existing salary inputs relating to the individual’s employment, combined with the scheme Accrual Rate, Revaluation Rate and 'benefits accrued to date’ enable the software to calculate the eventual income benefit.
There are several optional fields, relating to the inclusion (or not) of bonus payments, in the calculation of benefits, indexation and spouse’s benefits. We will move ahead to the field labelled Accrual Rate.
Accrual Rate: you will set the accrual rate with reference to the scheme in question. Note that if you do not see the appropriate accrual rate listed, via the drop-down, then choose ‘Other’ and enter the equivalent percentage value; as an example, an accrual rate of 1/80th is equivalent to a % value of 1.25, which you would then enter.
Salary Scheme: here is where you will select the ‘CARE’ option, so that the benefit calculation will be based on each year and, thereby, to distinguish the benefit calculation from a traditional ‘final salary’ scheme.
Finally, there are two more fields that will need to be populated, namely the value of the Accrued Pension to Date and the Revaluation Rate. Members can, ordinarily, get a statement of benefits accrued to date from the scheme website and the current revaluation rate. Going forward, of course, the ‘revaluation rate’ may be liable to change and so an assumption is required in this regard.
With completion of the above, the software will be able to generate an estimate of the individual’s eventual income benefit from the scheme.
Additional options can be inputted, relating to lump sum payment and death benefits and – importantly – to enter the client’s contributory element (located at the bottom of the screen) under Individual Employee Contribution. (Note: the client’s contribution to the scheme will be assumed to continue up until the stated Normal Retirement Age.)
Commencement of Benefits
The software’s initial assumption is that DB scheme benefits will commence at the individual's Retirement event - where this is the case, no further action is needed.
Where this is not the case, you can designate the ‘event’ (on the Timeline) when the benefits will commence by selecting an alternative event in Timing, via the left-hand menu:
If you click into the Timing screen, you will see, in the first instance, that the designated ‘Start Pension’ event has defaulted to the individual’s Retirement. As with elsewhere in the software, one can change the selected ‘Start Pension’ event and – if you do not already have an ‘event’ in the appropriate year - one can even create a new event, on the spot, in the year the scheme benefits are expected to start, simply by double-clicking the screen in the white space adjacent to the client’s age.