Schemes / Defined benefit / CARE

In a defined benefit scheme the way the pension benefits are worked out is fixed and is not directly affected by investment returns on the pension scheme’s assets.

However, the contribution level required to pay for the benefits may change from time to time based on the outcome of valuations which take place at least every three years, to check the financial situation of the pension scheme.

Some defined benefit schemes are known as ‘final salary’ schemes and others may be known as ‘career average revalued earnings’ (CARE) schemes.

A final salary scheme generally uses a member’s earnings over the final year of membership to work out the benefits.

A CARE scheme works out benefits based on the average earned by a member throughout their whole career. These earnings are revalued in line with the Retail Price Index (RPI) or other form of index.