Someone asked about a career average pension scheme.
Basically there are two types of pension scheme- defined contribution and defined benefit.
In a defined contribution (DV) scheme your employer promises to pay a certain amount of money into a pot each year. That money, together with your contributions, is invested and whatever it is worth at the point of retirement is used to buy your annuity, which provides you with income retirement. There’s no guarantee as to what your pot will be worth at retirement, that depends on the investment return. Employers like DC schemes because the costs to them are predictable and manageable.
In a defined benefit scheme, your employer effectively promises you a certain level of income in retirement. Typically that was based on a percentage of your final salary, eg 1/60 of your final salary for each year of employment. That would mean someone who worked there for 20 years would build up an annual pension of 20/60ths, or 1/3rd, of their final salary. Employees usually pay in a fixed contribution into a pot to help fund the pension, but the employer has to pay the rest, so if investments don’t perform, the burden is on the employer to top up the payments to the promised amount. This makes them expensive, and unpredictable, for employers, which is one of the reasons DB schemes have pretty much been phased out in the private sector.
Career average schemes are a type of DB scheme, but the final pension is a percentage of the employee’s average salary, rather than their final salary. This was introduced as a way of making it a bit cheaper for employers.
Hope that makes sense?!