What does the future hold for CARE?
Pardon the Interruption
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Career average schemes have traditionally replaced final salary schemes where the workforce was heavily unionised, but the cost of providing CARE is prompting more employers to abandon it altogether.
Household products giant Unilever is currently consulting on closing its CARE scheme to new joiners, replacing it with a defined contribution scheme, and reducing the accrual rate for existing members to 1/80th from 1/60th.
When the proposals were announced last year, executive vice president for Unilever UK & Ireland, Sebastian Munden, said that “in the last six years alone, the cost of providing [a defined benefit scheme] has increased by over 75%”.
Career average schemes have usually been introduced in the public sector, the educational sector and traditional industries, but companies introducing one now are few and far between.
Nicola Rondel, counsel at Hogan Lovells, says a switch to CARE would be a rare step for an employer to take now. “Those that were going to make the change have done so,” she opines.
Where employers close final salary schemes, they tend to move straight to DC unless the workforce is heavily unionised, because the cost of a CARE scheme is still significant compared with DC, says Rondel.
Unilever proposal confirms trend
For those private sector employers that did introduce a CARE scheme, it was perhaps only ever an interim step.
When Sunderland-based car manufacturer Nissan moved from final salary to CARE in 2018, unions voiced concern that this might not be the last step. Their fear was Nissan might in time follow companies like luxury car maker Bentley Motors, which was at that time consulting on closing its CARE scheme after a valuation suggested a funding hole of £500m for the £700m scheme.
The recent move by Unilever seems to confirm that employers consider CARE to be only marginally less of a burden than final salary – despite the lower volatility, which is often cited as a positive by companies. Unilever had replaced its final salary scheme with a CARE scheme in 2012, a process which involved nationwide walkouts.
Public sector upheaval over CARE is ongoing
Accrual rates in CARE are sometimes more generous than those for final salary, making them only slightly less expensive to fund.
Differences in the rates of accrual are also the reason the government plans to consult about remedies to age discrimination before switching CARE members back to final salary.
As the government lost a legal challenge around protections for older workers when public sector schemes changed to CARE in 2015, it is now obliged to remedy the situation for those who were moved to CARE, whilst ensuring no member loses out – a process which could be complex as some members might be worse off in the old scheme. The government is holding technical talks with stakeholders before the consultation is issued in spring.
