The Local Government Pension Scheme (LGPS) in England and Wales moved to a Career Average Revalued Earnings (CARE) Scheme from 1 April 2014. The CARE scheme is still a defined benefit scheme, but with a difference in how the pension is calculated.
Employers must provide CARE pay to Avon Pension Fund at Year End for all active members.
How CARE accounts work
In the CARE scheme, your employees build up a pension based on their pensionable pay each year.
To calculate this you divide the pensionable pay, paid in each year to the 31 March, by the accrual rate of 49 (or 98 if the member was in the 50/50 section) to arrive at the pension earned in each year.
On 6 April the cumulative pension in the pension account is adjusted by the revaluation rate. The revaluation rate is based on the annual change in CPI inflation from the September before the scheme year end date.
This is repeated every year. So in the following year, the pensionable pay is divided by the accrual rate and the pension earned is added to the previously earned pension. The total is adjusted by the revaluation rate on the following 6 April.
Example active member pension account
| Scheme year ending | Pensionable pay during scheme year | Accrual rate | Earned pension | Carry forward from previous scheme year | Total | Revaluation | Total pension to carry forward |
|---|---|---|---|---|---|---|---|
| 31 March 2020 | £24,100 | 1/49 | £491.84 | £0 | £491.84 | 1.7% | £500.20 |
| 31 March 2021 | £11,200 | 1/98 | £114.29 | - | - | - | - |
| 31 March 2021 | £13,800 | 1/49 | £281.63 | £500.20 | £896.12 | 0.5% | £900.60 |
| 31 March 2022 | £25,900 | 1/49 | £528.57 | £900.60 | £1,429.17 | 3.1% | £1,473.47 |
| 31 March 2023 | £26,200 | 1/49 | £534.69 | £1,473.47 | £2,008.16 | 10.1% | £2,210.98 |
Cumulative pensionable pay
This is the total of the ‘pensionable pay’ and/or ‘assumed pensionable pay’ in either the main or 50/50 section of the Scheme in the Scheme year. Cumulative pensionable pay must be provided separately for each section, because different accrual rates will apply when calculating the pension in each section.
If the employee moves between the main and 50/50 sections more than once in a Scheme year, there is no requirement to differentiate between different periods in the sections. The cumulative amounts should contain all of the pensionable pay and/or assumed pensionable pay in each section during the year.
Calculating cumulative pensionable pay
Example: A member is on a salary of £24,000 throughout the Scheme year.
They move to the 50/50 section after three months, having already earned £6,000 in the main section.
They spend five months in the 50/50 section while they earn £10,000.
They move back into the main section earning another £8,000.
The cumulative at the end of the Scheme year are £14,000 in the main section and £10,000 in the 50/50 section.
Pensionable pay definition
Pensionable Pay in the LGPS is the sum of all payments in respect of the job apart from those listed in the regulations as exclusions. The 2014 Scheme definition of pensionable pay (Regulation 20).
Includes:
- Salary, wages, fees and other payments made to them for their own use in respect of their employment and
- Any other payment of benefit specified in their contract of employment as being a pensionable emolument
Excludes:
- Any sum without income tax determined on it
- Travel allowances & subsistence
- Payment for loss of holidays
- Payment in lieu of notice
- Payments to induce an employee not to terminate their employment
- The money value of providing (or in lieu of providing) a motor vehicle
- Payment in consideration of loss of future pensionable payments or benefits
- Award or compensation for the purpose of achieving equal pay other than a payment representing arrears of pay
- Payment made to an employee on reserve forces service leave
- Returning or acting returning officer fees paid unless paid in respect of;
- Local government elections
- Elections for the National Assembly for Wales
- Parliamentary elections, or
- European Parliamentary elections.