How should academy trusts budget for the Teachers’ Pension employer contribution rate change in April 2027?

Academy trusts face an important financial planning exercise ahead of April 2027, when the Teachers’ Pension Scheme (TPS) employer contribution rate falls from 28.6% to 17.6%. While the reduction will lower employment costs, it will be accompanied by a corresponding reduction in government funding.

The Department for Education (DfE) intends the change to be cost-neutral nationally. However, individual academy trusts could find themselves financially better or worse off, depending on their staffing costs, funding allocations and, from September 2027, the operation of local funding formulae.

With the adjustment taking effect partway through the 2026 to 2027 academic year, finance leaders need to understand its impact on both their current-year forecasts and longer-term budgets.

At a glance

In short, academy trusts should model the pension saving and the funding deduction together, using their own TPS payroll, because the deduction is formula-based and the two will not match for every trust.

Question	Short answer
What is changing?	The TPS employer contribution rate falls from 28.6% to 17.6% of pensionable pay (28.68% to 17.68% including the administration levy). The DfE is reducing funding by a matching amount nationally, so it is not new money.
Who is affected?	Academy trusts with teachers in the TPS. Support staff in the LGPS are not affected, and special and alternative provision academies have separate funding arrangements.
When does it start, and how long does it last?	1 April 2027. The new rate is payable until 31 March 2031.
Where will it show up?	As a debit line on monthly GAG remittance statements from April to August 2027, then built into 2027 to 2028 GAG allocations.
Why is it happening?	The latest scheme valuation lowered the employer rate, and the DfE is adjusting funding to keep the change cost-neutral for the sector as a whole.
How much will be deducted?	For mainstream academies, April to August deductions include £74 per primary pupil, £104 per key stage 3 pupil and £117 per key stage 4 pupil, plus £2,750 per school and FSM6 amounts.
What should finance leaders do?	Estimate the deduction with the DfE calculator, calculate the saving from forecast TPS pay, compare the two and report all three figures to trustees. The six steps are set out below.

What is changing in the Teachers’ Pension employer rate in April 2027?

From 1 April 2027, the employer contribution rate for the Teachers’ Pension Scheme will decrease by 11 percentage points, from 28.6% to 17.6% of pensionable pay.

The reduction follows the latest pension scheme valuation and, according to the DfE, does not affect the defined-benefit pension entitlements of current or retired teachers. The Government Actuary’s valuation results give the total employer rate, including the administration levy, as 17.68% of pensionable pay, payable from 1 April 2027 to 31 March 2031.

According to the DfE’s published funding adjustment methodology, the change represents a reduction in employer pension costs of approximately £3 billion across schools and further education providers in England during the 2027 to 2028 financial year. However, the government is reducing education funding by an equivalent amount at national level.

The change applies to employees who participate in the TPS. Support staff who belong to the Local Government Pension Scheme (LGPS) are not affected, making it important for trusts to distinguish between different categories of pensionable payroll when calculating the financial impact.

Will the lower Teachers’ Pension rate mean more money for academy trusts?

Although academy trusts will pay less in employer pension contributions, they should not assume that the difference will be available to support other spending priorities.

The DfE has confirmed that funding will be reduced to reflect the lower pension costs, with the intention of maintaining the sector’s overall spending power. National cost neutrality does not guarantee that every academy trust will experience a cost-neutral outcome.

The funding reduction is calculated using national funding formula factors rather than each trust’s actual TPS payroll. This means the financial impact will vary according to the proportion of funding an academy spends on TPS-covered salaries.

Broadly speaking, a trust with relatively high TPS pensionable payroll costs may benefit from a larger reduction in expenditure than the corresponding funding deduction. Conversely, a trust with lower TPS payroll costs could find that its funding falls by more than it saves.

From September 2027, the position will also be influenced by local authority funding formulae, minimum per-pupil funding levels and the operation of funding protections, because the DfE is building the adjustment into those arrangements. The April to August 2027 deduction is calculated from set rates and does not depend on them.

For multi-academy trusts operating across different local authority areas, these variations make trust-wide financial modelling particularly important.

How will the funding reduction affect academy GAG payments?

The timing of the adjustment creates an additional consideration for academy finance teams.

Although the new employer contribution rate takes effect on 1 April 2027, academies receive their core funding through the general annual grant (GAG), which operates on an academic-year basis. Consequently, the DfE will apply the funding reduction in two stages:

April to August 2027

Existing 2026 to 2027 GAG allocations were calculated before the reduction in pension contributions. To account for the lower pension costs during the final five months of that academic year, the DfE will apply a separate deduction to academies’ monthly GAG payments.

This will appear as a debit line on remittance statements between April and August 2027.

From September 2027

From the start of the 2027 to 2028 academic year, the pension funding adjustment will be incorporated into GAG allocations through the relevant funding formula arrangements.

This means finance teams will need to distinguish between the temporary monthly deductions in the current academic year and the revised funding allocations that will apply from September.

How much GAG funding will be deducted for mainstream academies?

For mainstream academies, the DfE has published the following rates. The April to August column is the deduction applied to monthly GAG payments. The full-year column is the reduction the DfE is building into the 2027 to 2028 funding formula.

Funding component	April to August 2027 deduction (£)	Full-year rate, 2027 to 2028 financial year (£)
Primary pupil, including reception	74	178
Key stage 3 pupil	104	250
Key stage 4 pupil	117	281
Lump sum per school	2,750	6,600
FSM6 eligible primary pupil	65	155
FSM6 eligible secondary pupil	94	225

The April to August rates are broadly five-twelfths of the full-year rates, subject to rounding. The DfE applies the relevant area cost adjustment when calculating deductions for individual mainstream academies.

The full-year figures are not final. The DfE’s summary policy document says the confirmed factor values will be published with the national funding formula allocations later in autumn 2026.

These figures provide a useful starting point for financial planning, but should not be treated as a definitive forecast of an academy’s eventual 2027 to 2028 GAG allocation. Actual allocations will reflect the relevant local authority funding formula, funding protections and other adjustments incorporated into the national funding arrangements.

The DfE has published a funding adjustment calculator for mainstream academies, allowing finance teams to estimate the April to August 2027 deduction before it is applied.

What about special schools and alternative provision?

The figures above apply to mainstream academies.

Special schools, alternative provision academies and other providers of hospital education are subject to separate arrangements involving high-needs funding. Trusts operating these settings should therefore refer to the relevant section of the DfE methodology rather than applying the mainstream calculation across all their schools.

Could your academy trust be worse off? A worked example

A simple worked example illustrates why the reduction in pension contributions should not automatically be treated as a saving.

Consider a hypothetical multi-academy trust with annual TPS pensionable pay of £5 million. At the current employer contribution rate of 28.6%, its annual employer pension contributions would be £1,430,000. At the new rate of 17.6%, that cost would fall to £880,000. The gross annual saving would therefore be £550,000.

However, if the trust’s corresponding annual funding reduction were £575,000, the overall position would be:

Financial impact	Annual amount
Gross saving in employer pension contributions	£550,000
Illustrative reduction in funding	(£575,000)
Net financial impact	(£25,000)

Because the change takes effect in April, the first year covers only five months. On the same assumptions, pro rata, the saving in 2026 to 2027 would be about £229,000 against a funding deduction of about £240,000, leaving the trust around £10,000 worse off.

This example is illustrative and assumes unchanged pensionable pay. The funding reduction is hypothetical and is not based on a specific trust’s allocation. Separate administration levy considerations are excluded.

In this scenario, despite a substantial reduction in employer pension costs, the trust would be £25,000 worse off annually. Other trusts may experience the opposite outcome, particularly where their TPS pensionable payroll represents a higher proportion of funding than the formula effectively assumes.

Neither the gross pension saving nor the funding reduction should be considered in isolation.

How to budget for the rate change: six steps for academy trust finance leaders

With the changes taking effect in April 2027, academy trust finance teams should incorporate the adjustment into their financial planning rather than waiting for the next academic year’s funding allocations.

1. Calculate the April to August funding deduction

Use the DfE’s funding adjustment calculator to estimate the reduction in GAG payments between April and August 2027.

Include the anticipated monthly deductions in cash flow forecasts and the projected outturn for the 2026 to 2027 academic year.

2. Model the actual reduction in pension costs

Calculate the expected saving using forecast TPS pensionable pay rather than total payroll expenditure.

An 11-percentage-point reduction means that every £1 million of annual TPS pensionable pay would generate a gross annual saving of £110,000, assuming payroll remains unchanged. Over five months, that would equate to approximately £45,800.

However, actual savings should reflect forecast staffing levels, pensionable earnings and the September 2026 teacher pay award.

3. Compare the saving with the funding reduction

Assess the net financial effect for April to August 2027 and model the full 2027 to 2028 academic year separately.

Where there is a material difference between the anticipated payroll saving and the funding reduction, finance leaders should understand the underlying reasons.

This is particularly important for trusts with unusual staffing structures, significant variations in pupil numbers or schools operating across different local authority areas.

4. Review multi-year forecasts and funding assumptions

The pension adjustment should be reflected in multi-year financial forecasts, alongside other known and anticipated changes to income and expenditure.

The DfE’s funding adjustment methodology sets out how the reduction is built into the 2027 to 2028 formula, and its summary policy document confirms that final factor values will follow later in autumn 2026. Trusts should update their forecasts when confirmed GAG allocations become available, which the DfE’s planning calendar places in the new year and spring.

Any apparent net financial gain should be treated cautiously until the relevant allocations and funding assumptions have been verified.

5. Check sixth-form and specialist provision separately

Academy trusts with sixth forms should review the separate post-16 Teachers’ Pension Scheme employer contribution grant arrangements.

The funding adjustment for mainstream reception-to-key-stage-4 provision should not be assumed to account for all post-16 activity. From April 2027, the 16 to 19 grant will only need to cover the gap between the pre-2019 rate of 16.4% and the new 17.6% rate, according to its conditions of grant.

Similarly, trusts operating special schools or alternative provision should assess the separate high-needs funding arrangements.

6. Present the full financial impact to trustees

Trustees and audit and risk committees should receive a clear explanation of the changes and their implications for financial sustainability.

Reporting should distinguish between:

• the gross reduction in TPS employer pension costs
• the corresponding reduction in government funding
• the resulting net impact on the trust’s financial position

These figures should be incorporated into management accounts, budget monitoring and the trust’s multi-year forecasts, as well as the relevant budget forecast return.

Presenting all three figures will help trustees understand whether the change creates additional financial headroom or increases existing budget pressures.

How the pension change sits alongside the 2026 and 2027 teacher pay awards

The TPS adjustment also needs to be considered alongside other pressures on academy trust finances.

The government’s July 2026 announcement confirmed teacher pay increases of 3.5% from September 2026 and 3% from September 2027. Schools are expected to find the first 1% of each award from existing budgets. The DfE has also committed additional funding, including £700 million in 2026 to 2027 and £1.1 billion in 2027 to 2028, but the net position still depends on each trust’s own staffing and costs.

For trusts already managing staffing pressures, rising operational costs and limited financial reserves, the distinction between lower pension expenditure and new funding is particularly important. A reduction in employer pension contributions may appear positive when viewed in isolation. Once the corresponding funding adjustment is included, the benefit may be smaller, disappear altogether or become a net cost.

Frequently asked questions about the Teachers Pension

Support with academy trust budgeting and forecasting

The national funding adjustment will not affect every academy trust equally. Reliable forecasts depend on understanding how pensionable payroll, GAG allocations and the wider funding formula interact.

At UHY Williamson Croft, as well as audit and internal scrutiny, our academy trusts team works with education leaders to support financial planning, reporting and longer-term financial sustainability. If you would like to understand how the April 2027 pension changes could affect your trust’s budget, contact Tor Stringfellow as below to discuss your forecasts and funding assumptions.