How a CARE scheme works
From 1 April 2014 the LGPS became a Career Average Revalued Earnings (CARE) scheme. A CARE scheme calculates your pension using the formula:
- the accrual rate times your pensionable pay
- accrual rate is the formula used to describe the rate at which you build up pension benefits
- pensionable pay is defined as the amount of pay on which you pay any membership contributions
Each year of membership is given a value based on your pay in that year and then revalued each year to reflect inflation.
In a CARE scheme the pensionable pay for each year of membership is used to calculate a pension amount for that particular year. That pension amount is then revalued each year in line with inflation.
It should be remembered that, while your CARE pension might be expected to increase each year, the pension amount could be reduced should there be negative inflation. These individual pension amounts are then added together to arrive at the total pension payable from the scheme.
In the LGPS the accrual rate for the main scheme is 1/49th.
In the optional "50/50" scheme the accrual rate is 1/98th, as half of a 1/49th, but you pay only half the contribution rate of the main scheme.
Example, main scheme
Tom earns £20,000, so his pension in year 1 is worked out as: £20,000 x 1/49th = £408
The £408 that Tom earns in year 1 is revalued at the end of the next year to account for inflation. Assuming inflation in year 1 is 4%, at the end of year 2 this part of Tom's pension is £408 x 1.04 = £424
Example, 50/50 scheme
If Tom opted to be in the 50/50 scheme instead of the main scheme and still earns £20,000, his pension in year 1 is worked out as: £20,000 x 1/98th = £204.
The £204 that Tom earns in year 1 is revalued at the end of the next year. So, at the end of year 2, this part of Tom's pension is £204 x 1.04 = £212.
