If you're a member of a defined benefit pension scheme — particularly in the public sector — you may have heard that your scheme moved from "final salary" to "career average" at some point in the last decade or so, and wondered what that actually changed for you. It's one of the most significant pension reforms of recent times, affecting millions of NHS staff, teachers, civil servants, and local government workers, and it genuinely does change how your pension is calculated, not just what it's called. This page explains, in plain terms, how each structure works, why the shift happened, who tends to do better under each one, and works through a full side-by-side numeric example so you can see exactly where the difference comes from.

How final salary schemes work

A final salary scheme calculates your pension using your salary at, or very near, the point you retire (or leave the scheme) — sometimes it's your literal final salary, sometimes it's the best of your last one, three, or occasionally ten years, depending on the specific scheme's rules. That salary figure is then multiplied by your total years of service and the scheme's accrual rate (see our guide on how defined benefit pensions work for more on accrual rates) to produce your annual pension. Because the whole calculation hinges on one salary figure taken near the end of your career, a final salary scheme rewards strong, late-career salary growth extremely generously — every year of past service effectively gets "revalued" up to whatever your final salary turns out to be, even though you were paid less in most of those earlier years.

How career average (CARE) schemes work

A career average revalued earnings scheme, usually shortened to CARE, works differently. Instead of applying one final salary figure to your whole career, it calculates a small slice of pension separately for each individual year you work, based on that year's actual salary. Each year's slice is then revalued (increased) each year in line with a measure of inflation or a specified index, right up until you retire, and all of the revalued annual slices are added together to produce your total pension. In effect, your career average pension is built up like a series of small, separate deposits, each one earning its own "interest" (revaluation) over time, rather than one figure calculated backwards from your final pay.

Why most schemes have moved to career average

Following the 2011 Independent Public Service Pensions Commission review (the Hutton Review), most major UK public sector pension schemes moved from final salary to career average design, with reforms taking effect through the 2010s. The NHS Pension Scheme, the Teachers' Pension Scheme, the Civil Service pension arrangements (Alpha), and the Local Government Pension Scheme (LGPS, which had already been career average since 2014) are now all built on a career average basis for service from the reform date onwards, although many members retain some final salary benefits for earlier years of service under transitional protection arrangements.

The main driver was cost and fairness across a workforce. Final salary schemes are inherently more expensive to fund for employers whose staff receive significant late-career promotions or pay rises, because every year of past service gets revalued up to that higher final figure. They also tend to reward people whose careers include a late promotion far more than people who spend their whole career in a similar role without much salary progression — even if both put in identical years of service and similar overall contributions. Career average was seen as fairer across a whole workforce, and more predictable and controllable in cost terms for the employer (in the public sector's case, ultimately the taxpayer), since each year's cost is based on what was actually paid that year, not an assumption about future salary growth.

Who benefits more under each structure

Final salary schemes favour people whose salary rises sharply towards the end of their career — a late promotion to a senior or management role, for example, retrospectively boosts the value of every earlier year of service, since the whole pension is calculated on that higher final figure. This makes final salary schemes especially generous for career-long employees who end up in significantly higher-paid roles than they started in.

Career average schemes tend to suit people whose salary doesn't rise dramatically towards the end of their career, or whose highest-paid years came in the middle of their career rather than right at the end, since every year is valued on its own terms (adjusted for inflation) rather than being flattened to a single final figure. They also tend to be fairer for people who reduce their hours or step down into a lower-paid role in the years before retirement — a common pattern for people winding down towards retirement — since a final salary scheme could otherwise penalise them heavily by basing the whole pension on that lower final salary, whereas a career average scheme simply reflects each year's own salary and preserves the value already built up in higher-earning years.

A worked side-by-side example

Take Sarah, a teacher with 30 years of service, whose salary started at £24,000 and rose steadily to £48,000 in her final year, having spent her last five years in a senior leadership role on that higher salary. Let's compare her pension under a final salary scheme (1/60th accrual, based on her final salary) against a career average scheme (1/57th accrual on each year's revalued salary, roughly comparable to actual current teacher pension terms).

Under final salary: 30 years × (1/60) × £48,000 (her final salary) = £24,000 a year, regardless of how much lower her salary was in her earlier years of service.

Under career average: each year's slice is based on that year's own salary, then revalued for inflation. Very roughly, if her average revalued salary across the 30 years (after adjusting each year's slice up to today's money) works out at around £38,000, her pension would be 30 years × (1/57) × £38,000 ≈ £20,000 a year.

In Sarah's case — a strong late-career promotion, with her salary doubling from start to finish — the final salary structure produces a noticeably higher pension, around £4,000 a year more, because it lets her final, higher salary apply to every one of her 30 years of service, not just the last five. If Sarah had instead had a flatter career, with a smaller gap between her starting and final salary, the two structures would land much closer together, and in some flatter-salary cases career average can even produce a slightly higher figure, because of ongoing inflation revaluation applied to earlier years.

Comparison at a glance

Feature
Final salary
Career average (CARE)
Calculation basis
Salary at or near retirement
Each year's own salary, revalued for inflation, added together
Best for
Strong late-career salary growth or promotion
Flatter career salary progression, or reduced hours near retirement
Cost to employer
Higher and less predictable
Lower and more predictable, tied to actual pay each year
Where it's found now
Some private sector legacy schemes; protected pre-reform service in public sector schemes
Most current public sector schemes: NHS, Teachers', Civil Service (Alpha), LGPS
Effect of a late pay cut or reduced hours
Can significantly reduce the whole-career pension
No effect on pension already built up in earlier, higher-paid years

Checking which structure applies to you

Many long-serving public sector members are actually in both structures at once — final salary for years of service before their scheme's reform date, and career average for service afterwards, with transitional protection rules determining exactly where the cut-off falls for someone close to retirement at the time of reform. This "split" pension is common and entirely normal; your scheme's annual benefit statement should set out how much of your pension falls under each structure, and it's worth reading this carefully rather than assuming your whole pension follows one rule. If anything on your statement is unclear, your scheme administrator (for example the NHS Pensions team, Teachers' Pensions, or your local LGPS administering authority) can talk you through exactly how your specific figures were calculated.

How career average revaluation actually keeps pace with inflation

One detail that often confuses career average members is exactly how their earlier years' pension slices stay meaningful decades later. Each year's earned slice isn't frozen in the pounds it was worth when you earned it — it's revalued, typically each year, using an index set out in the scheme rules, often linked to a measure of price inflation (such as the Consumer Prices Index) or, in some schemes, to average earnings growth, sometimes with a fixed addition on top. This revaluation continues every year until you retire (or leave the scheme), so a slice of pension earned when you were 30 keeps its real value right through to when you draw your pension at 65 or later, rather than being left to wither in cash terms. It's this ongoing revaluation that makes career average schemes considerably fairer than they might sound at first — "average" doesn't mean simply adding up historic cash amounts; it means adding up amounts that have each been kept broadly in line with the cost of living.

Transitional protection and the McCloud remedy

When the 2010s reforms moved most public sector schemes to career average, transitional protection was offered to members closest to retirement at the time, letting them stay in their older final salary scheme for a further period rather than moving immediately to the new career average arrangement. This protection was later challenged in court on age discrimination grounds, in a case that became widely known as the McCloud judgment (covering the judiciary and firefighters' schemes, with equivalent issues across other public sector schemes). The outcome, generally referred to as the McCloud remedy, required schemes to offer eligible members a choice between final salary and career average terms for the period in question, correcting the unequal treatment. If you were a public sector scheme member during the relevant transition years, this remedy may affect exactly how your benefits for that period are calculated, and it's worth checking with your scheme administrator if you're unsure whether it applies to your record.

Practical tips if your scheme has changed structure

Frequently asked questions

Moving between employers under each structure

One further practical difference worth knowing about is what happens to your defined benefit pension if you leave an employer before retirement. Under a final salary scheme, if you leave early, your accrued pension is usually calculated based on your salary at the point you left, then increased (revalued) up to retirement using a statutory formula — so you don't get the benefit of any further final-salary growth from that employer, since you're no longer there to earn it. Under a career average scheme, leaving early has a smaller relative effect, because each year's slice was already calculated on that year's own salary and continues to be revalued in the normal way regardless of whether you're still employed there — there's no "final salary" moment being missed out on, since the structure never depended on one salary figure in the first place. This is another reason career average schemes are often considered fairer for a more mobile modern workforce, where fewer people spend an entire career with a single employer than in previous generations.

Whichever structure applies, a pension left behind with a previous employer (sometimes called a "deferred" pension) doesn't disappear — it's preserved and continues to be revalued until you draw it, though the specific method and timing depend on the scheme's own rules. If you have deferred pensions from previous jobs, it's worth periodically requesting an updated statement so you have an accurate, current picture of everything you're entitled to when you come to plan your overall retirement income.

Scheme rules, accrual rates, and revaluation methods vary between schemes and have changed over time; the figures here are illustrative, not a substitute for your own scheme's benefit statement. For free, independent pensions guidance, visit MoneyHelper.