Defined Benefit Multi-Employer Schemes
A 'defined benefit' pension scheme provides benefits that are linked to the length of membership, and pensionable earnings.
Benefits are calculated according to a formula and members will have a clear idea of the pension they can expect to receive in retirement.
The cost of providing this type of scheme depends on a lot of different factors - members' salaries, inflation, investment returns and how long members might live are just a few. An actuary reviews the Scheme funding every three years to check the contributions are sufficient.
Many employers face a conflict between wanting to provide a good level of pension benefits for their employees, for example by offering a 'final salary' defined benefit (DB) scheme, and the need for predictable pension costs, which are available from a defined contribution (DC) scheme.
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The CARE Scheme |
Our CARE (Career Average Revalued Earnings) Scheme provides another way for companies that want to balance cost control with secure benefits. It provides members with a defined level of benefit, which offers both security and certainty.
Benefits are based on career average earnings, rather than earnings close to retirement ('final salary') and CARE is particularly suitable for employees with variable working patterns – those who move from full to part time or those whose earning potential drops off before retirement.
Employer costs are more predictable than the traditional final salary scheme as members’ benefits increase during their membership by Retail Price Index (RPI) rather than salary inflation. Early leavers are treated in the same way as contributing members; their deferred benefits also continue to increase in line with RPI.
The Scheme also provides the following benefits:
- The option to exchange some pension for a tax-free cash lump sum.
- Lump sum benefits on death-in-service.
- Survivor's and children's pensions after the member's death.
- Pension increases after retirement.
- Ill-health early retirement benefits.
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Click here to find out further information on The CARE Scheme. |
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Final Salary
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A 'final salary' pension scheme provides benefits that are linked to the length of membership and pensionable earnings at or close to retirement. A final salary scheme is a type of 'defined benefit' scheme as the benefits are worked out according to a formula.
Final salary schemes usually provide the most generous benefits for members but employers need to be aware that the cost of offering this type of scheme can be significant and change regularly.
Services that The Pensions Trust can provide for employers wishing to offer a defined benefit scheme include:
- A comprehensive service comprising all aspects of pension scheme administration.
- The facility to offer benefits on a career average (CARE) basis, alongside or in place of an existing final salary benefit structure, helping you to reduce your pension costs.
- The option to join one of our multi-employer defined benefit schemes if your organisation is in the social housing or independent schools' sector.
Defined benefit schemes can offer:
- The option to exchange some pension for a tax-free cash lump sum.
- Lump sum benefits on death-in-service.
- Survivor's and children's pensions after the member's death.
- Pension increases after retirement.
- Ill-health early retirement benefits.
- Member contributions can be either fixed or age-related (provided age discrimination regulations are observed). Occasionally schemes are non-contributory.
- The option to pay Additional Voluntary Contributions (AVCs) to buy additional benefits.
- Provided it meets minimum requirements, a scheme can be contracted-out of the State Second Pension, which means lower National Insurance contributions for employer and members.