UK - Career average revalued earnings schemes have been dismissed as "disastrous" by trade unions while consultants are split over whether they could replace final salary plans.
CARE schemes have been introduced by a raft of UK firms – such as supermarket giants Tesco and Safeway.
Tesco – which launched its CARE scheme last year – said that it would provide workers with certainty and security and protect the firm’s shareholders from open-ended liabilities.
But Unison head of pensions Glyn Jenkins said a CARE scheme was a benefit cut “no matter which way you look at it”.
He said: “Basically, the revaluation would have to be in line with earnings for it to be a reasonable scheme. But all the schemes we’ve come across are revalued in line with prices.”
And Hazell Carr director Kenneth Donaldson warned that running a CARE scheme would expose companies to “exactly the same risks as a final salary scheme”.
He said: “Every actuarial theory that applies to final salary schemes applies equally to CARE. You’ve got all the risks associated with it, investment risk, mortality risk.
“I am suspicious of firms that embrace CARE as being a panacea for all ills, because you end up with a benefit cut which is disguised as a very complicated thing that nobody understands.”
Mercer Human Resources Consulting European partner Matthew Demwell disagreed.
He believes CARE schemes represent an “excellent compromise” for members and companies.
Demwell said: “A traditional 1/60th final salary scheme a few years ago was a very nice element of the benefits package and affordable.”
But he added: “Those days are gone. It used to be nice when you could go out and leave your door unlocked at night.
“But it’s gone, and really what we all need is for people to stop harking back to the ‘good old days’ and thinking they can return, and deal with the harsh realities of today’s economic climate and the impact of ever increasing life expectancy.”
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