Career average revalued earnings (CARE)
The 2015 scheme differs from the 1995 and 2008 sections, which give a final salary pension, in that it provides career average revalued earnings (CARE) benefits for all doctors.
CARE pension schemes differ from final salary in that they take account of pensionable earnings in every year of scheme membership rather than just prior to retirement.
The accrual rate in the 2015 scheme is 1/54 (equivalent to 1.85%), this means that every year a member will accrue 1/54 of their pensionable earnings. The total of all the annual pension accrual amounts is added together at retirement to calculate the final pension.
Of course if you are going to base pension accrual on lifetime earnings then it is necessary to have in place a mechanism for revaluing previous years' earnings so that they do not lose value. In the 2015 scheme the revaluation rate will be the Consumer Prices Index (CPI) plus 1.5%.
CARE in practice
Let's say that you earn £75,000 in pensionable income this year and the CPI rate is 3%.
Your pension would be 1/54 x £75,000 = £1,389 and it would be increased by the revaluation rate (CPI 3% + 1.5%) to £1,452.
Every year the total of the previous years' pension accrual would be increased by the relevant rate for that year.
Increase in normal pension age
Another key aspect of the 2015 scheme is the increase in normal pension age. The following examples illustrate this.
- Hugo is a 55-year-old GP and a member of the 1995 section.
- He was within 10 years of his normal pension age on 1 April 2012 and therefore has full protection and did not have to join the 2015 scheme.
- He can continue accruing benefits and draw his pension and lump sum at age 60 if he wishes.
- If Hugo retires and returns to work in the NHS he will not be able to rejoin the NHS pension scheme.
- Kellie is a 43-year-old consultant who opted to move to the 2008 section under choice two before joining the 2015 scheme.
- As she was more than 13.5 years from her normal pension age on 1 April 2012 Kellie would not have received protection and so decided to transfer her accrued benefits from the 1995 section to 2008 under choice two.
- She joined the 2015 scheme and began to build her benefits.
- Kellie has 20 years of final salary pension in the 2008 section and this will be linked to her reckonable salary at retirement, which means that she will benefit from any future pay increases.
- She will be able to draw her 2008 section benefits at age 65 and either draw her 2015 scheme benefits at the same time (they would be subject to an actuarial reduction) or leave them in the scheme until her state pension age of 67.
- If Kellie draws her benefits from the 2008 section and returns to work then, providing she has taken the appropriate break in service, she would be able to build up further benefits in the 2015 scheme.
- Moussa is a 37-year-old staff grade doctor and was a member of the 1995 section before joining the 2015 scheme.
- Moussa was more than 13.5 years from his normal pension age in 2012 and therefore joined the 2015 scheme.
- Moussa accrued 10 years of final salary pension in the 1995 section. This will be linked to his final salary at retirement, which means that he will benefit from any future pay increases.
- Moussa started to build up benefits in the 2015 scheme under CARE accrual.
- He will be able to draw his protected rights from the 1995 section at age 60 and either draw his 2015 scheme benefits at the same time or leave them in the scheme until his state pension age of 68.
- If Moussa draws his benefits from the 1995 section and returns to work he would not be able to build up further benefits in the 2015 scheme.
- If he draws his 2015 section benefits at age 60 (with his 1995 benefits) then the 2015 scheme benefits would be actuarially reduced.
- Beatrice is a 21-year-old medical student who started work after 2015 and immediately joined the 2015 scheme.
- Beatrice will accrue benefits under the CARE method and her state pension age is 68.
- She has a long time until retirement. It is likely to increase during her career if the Government increases the state pension age due to improving mortality rates.