The new 2015 NHS Pension Scheme is a Career Average Revalued Earnings (CARE) Scheme. Today we explore the main features of a CARE Scheme and how they differ from the existing Sections.
A CARE Scheme is still, like the old Sections of the NHS Pension Scheme, a 'defined benefit' pension scheme. This means that your eventual pension benefits are defined and guaranteed by fixed formulas written into the pensions legislation.
In a CARE pension scheme, your pension is based upon your average pensionable earnings throughout your career. In each year, you earn a proportion of your pensionable earnings and then that proportion is revalued by a set percentage each year up until retirement. Your eventual pension is the total of all of the years pension you have accrued.
This is different to your existing NHS sections which are based on your final salary (hence are known as Final Salary Pensions). In the 1995 Section your final salary is based upon the best of the last 3 years pensionable salary and in the 2008 Section your final salary is based upon the average of the best 3 consecutive years in the 10 years leading up to your Normal Pension Age.
The amount of pension you build up each year in the NHS CARE scheme will be 1/54th of your pensionable earnings in that year. Therefore if you earned £90,000 pensionable earnings in a year, then the pension you have built up in that year is 1/54 x 90,000 = £1,667.
The pension you have earned each year is then revalued each year up until your retirement. In the 2015 NHS Pension Scheme this revaluation factor is CPI (Consumer Price Index) + 1.5% per year.
Remember if you leave the NHS before your retirement, then your built up NHS Pension will then only be revalued by CPI.