Career Average Schemes

A career average scheme operates in much the same way as a final salary scheme (see Final Salary Schemes). The difference is that a career average scheme calculates your annual pension based on your average earnings over the total number of years you have been a scheme member. You will receive an annual pension which is a percentage of your average salary over your career with your employer. You may have to contribute to the pension scheme but the size of your pension fund when you come to retire will not affect the annual pension you are entitled to receive: this will be agreed when you sign the scheme contract initially.

You may choose to reduce the annual pension you are entitled to by claiming a tax-free lump sum on retirement (see Can I take a tax-free lump sum on retirement?); this will mean that you receive less annual pension thereafter than you would have done had you refused the lump sum. You will be entitled to receive an annual pension until you die, and the value of the pension should be increased in line with inflation to ensure you still have adequate funds to live on. Career average schemes are generally cheaper for employers than final salary schemes, so they may become more popular in the future.

For details of the amount you can expect to receive from your career average pension scheme see How much will I receive?