Guidance

Teachers’ pension employer contributions funding adjustment: methodology

Published 8 July 2026

Applies to England

Introduction

The government has announced that, from April 2027, employer contribution rates for the Teachers’ Pension Scheme (TPS) will decrease from 28.6% to 17.6%. This change will not reduce the value of the defined benefit teachers’ pension for current or retired teachers. The TPS is a defined benefit scheme, which means that the pensions teachers receive depend on their salary as well as the number of years they have been working for.

Funding for schools will be reduced to reflect the decreased cost at national level and thus be cost neutral for public sector employers as a whole. The spending power of the sector as a whole will therefore not decrease.

The total reduction across all schools and further education providers is equivalent to around £3 billion in financial year 2027 to 2028 in England.

The funding reduction will be equal to the cost reduction at national level, but there will be some variation across settings, depending on the proportion of their funding they spend on teacher salaries.

This guide explains how the funding reduction will be applied to:

• mainstream schools (reception to key stage 4 (KS4))
• special and alternative provision (AP) schools, and other providers of hospital education
• early years providers
• local authorities in respect of their centrally employed teachers

Information regarding how this change will affect post-16 grants is available at:

• Teachers’ pension scheme employer contribution grant for maintained schools and academies with 16 to 19 provision
• Teachers’ pension scheme employer contribution grant for further education providers

Mainstream schools (reception to KS4 provision)

The schools national funding formula (NFF) and local authority funding formulae

We use the national funding formula for schools to calculate the core funding allocated to local authorities for pupils from reception to key stage 4 in mainstream schools. Local authorities then set their own local funding formulae, which determine the distribution of this funding to maintained schools and academies in their area.

The funding reduction in respect of pensions will be incorporated into the schools NFF and the equivalent local authority funding formulae from the start of the financial year 2027 to 2028.

The adjustment will be incorporated into the schools NFF and the local funding formulae in 3 ways, reflecting the 3 different ways in which schools are funded. That is through adjustments to the:

• basic per pupil factor, the lump sum and the FSM6 factor values
• minimum per pupil levels
• baseline for each school, which is used to calculate funding protections for schools funded through the funding floor

This methodology mirrors the methodology used when funding in respect of pension contributions was rolled into the schools NFF in the 2025 to 2026 financial year, following the previous upwards valuation in pension contributions.

The 2027 to 2028 financial year factor values will be adjusted to account for the pension adjustment using the following rates:

• basic per-pupil reductions of:
  • £178 for primary pupils, including pupils in reception
  • £250 for key stage 3 pupils
  • £281 for key stage 4 pupils
• lump sum reduction of £6,600
• FSM6 per-pupil reductions of:
  • £155 per eligible primary pupil
  • £225 per eligible secondary pupil

The schools NFF for the 2027 to 2028 financial year will be published in the autumn. The final factor values, which take into account the adjustment in respect of pensions as well as other year-on-year changes, will be published at that stage.

Local authority-maintained schools

Local authority maintained mainstream schools receive their core funding allocations directly from their local authorities. Their allocations are:

• calculated using their local authority’s local funding formula
• allocated on a financial year basis

The funding adjustment in respect of pensions will be incorporated into their school budget shares from the start of the 2027 to 2028 financial year through the adjustments to the local authority formulae outlined above.

Academies

Academies receive their core funding allocation through the general annual grant (GAG). This is issued by the Department for Education (DfE), and is calculated based on their local authority’s local funding formula.

Since academies are funded on an academic year basis, the funding adjustment will be incorporated into their GAG allocations from the start of the 2027 to 2028 academic year.

The GAG allocations issued to academies for the 2026 to 2027 academic year do not take account of the reduction in pension contributions. For the 1 April to 31 August 2027 period, a separate adjustment will therefore be made. This adjustment will be shown as a debit line on the remittance statements, and the funding will be deducted from the monthly GAG allocations that are paid out between April and August 2027.

The funding deduction will be calculated using the same methodology as that previously used when allocating additional funding in respect of pensions through the teachers’ pension employer contribution grant (TPECG) 2024. This consists of a:

• basic per pupil reduction with different rates for primary, key stage 3 and key stage 4
• lump sum reduction applied to all schools, irrespective of pupil numbers
• per-pupil reduction rate for pupils who are recorded as having been eligible for free school meals at any point in the last 6 years (FSM6), with different rates for primary and secondary pupils

The base rates for academies for April to August 2027 are:

• basic per-pupil reductions of:
  • £74 for primary pupils, including pupils in reception  
  • £104 for key stage 3 pupils  
  • £117 for key stage 4 pupils  
• lump sum reduction of £2,750 
• FSM6 per-pupil reductions of:
  • £65 per eligible primary pupil  
  • £94 per eligible secondary pupil  

We will multiply the base rates by the relevant area cost adjustment (ACA) to calculate the school level funding reductions. We will use the same ACAs as in the schools NFF for 2026 to 2027 as published in the area cost adjustment for national funding formula: technical note.

We have published a funding adjustment calculator tool which academies can use to estimate their funding reduction before the deductions are published.

Mainstream schools funded through separate arrangements

A small number of mainstream schools are funded through separate funding arrangements outside of the schools NFF. The funding reductions for these schools will be calculated in the same way as for other mainstream schools. This includes city technology colleges (CTCs) which are funded through bespoke arrangements outside of the NFF.

Special and AP schools, and other providers of hospital education

This section sets out how the reduction of funding to account for the falling cost of employer pension contributions from April 2027 to March 2028 will be administered, including the timing of those reductions.

Local authorities will see a reduction in funding for the 2027 to 2028 financial year through the high needs block of the dedicated schools grant (DSG), due to be published in December 2026.

Local authorities will be responsible for:

• making the adjustment to the funding they allocate to:
  • schools they maintain
  • academies they previously maintained
  • free schools in their area
• reflecting any reduction in costs through adjustment to the payment of fees for their placements in independent schools

DfE will make the adjustments to non-maintained special schools directly by reducing their legacy (staff costs) funding.

The DSG adjustment methodology will be broadly based on the TPECG 2024 methodology, and will involve adjustment amounts calculated as follows. A:

• rate per place for special schools (maintained, academy and non-maintained) and AP schools (maintained and academy), multiplied by the 2026 to 2027 high needs ACA, using the published place numbers for the 2026 to 2027 academic year - the latest academy and non-maintained special school place numbers are published in High needs: allocated place numbers, and the maintained school place numbers will be those returned by local authorities as part of their section 251 budget returns, due to be published in September 2026
• rate per special educational needs (SEN) placement in an independent school that the local authority has recorded in their January 2026 AP census return - that rate is multiplied by the 2026 to 2027 high needs ACA
• percentage of the latest hospital education funding amount in the high needs block of the DSG, for hospital schools and other providers of hospital education

These rates will be confirmed in the autumn when the funding adjustments will be published. Those adjustments will be made in the normal December publication of the initial DSG allocations to local authorities. For new special and AP free schools opening after September 2026 later adjustments will be made.

Through the DSG conditions of grant we will require local authorities to pass on the adjustments through the legacy per-place funding they allocate to each maintained school and academy. These adjustments will also be based on the academic year 2026 to 2027 place numbers used for the DSG allocations. The adjustment will not take into account changes to place numbers in the 2027 to 2028 academic year.

To keep the arrangements simple and provide certainty for schools, the default approach that local authorities must take, which does not require them to consult their schools, is for the adjustments to be made on the same basis as the adjustments included in local authorities’ DSG allocations.

Local authorities can make exceptions, however, in consultation with the schools affected, where the scale of the standard adjustment would have a significant adverse impact on some of their schools’ ability to maintain their staffing. If local authorities make exceptions to the standard adjustments, they must have transparent criteria for the adjustments to individual schools, treating academies and maintained schools the same.

Non-maintained special schools will receive their adjustments directly from DfE, through their legacy (staff costs) funding stream, using the standard rate per place methodology, and with no exceptions made.

As the adjustments to local authorities’ DSG will also be based on their independent school placements, local authorities must also take steps to ensure that any fees charged by independent schools include an adjustment to reflect the decrease in the employer contribution for those teachers who belong to the teachers’ pension scheme.

Early years providers

The early years funding rates that the DfE will pay to each local authority to fund the early years entitlements for the 2027 to 2028 financial year will be set in the autumn. We will consider the impact of the falling cost of employer pension contributions in early years when setting these rates.

Local authority centrally employed teachers 

Funding will be reduced for local authorities to reflect the decrease in pension contributions for their centrally employed teachers. This reduction will be incorporated into the central school services block (CSSB) funding allocations for local authorities for the 2027 to 2028 financial year.

The reduction will be made based on the number of full-time equivalent teachers categorised as centrally employed on the schools workforce census 2025. This mirrors the methodology previously used when allocating additional funding in respect of pensions for centrally employed teachers through the TPECG 2024.

The funding reduction will be £4,831 per-teacher.

We will apply an ACA to the per-teacher rate because of geographical variation in labour costs. We will use the same ACAs as for the CSSB for 2026 to 2027 as published in the  area cost adjustment for national funding formula: technical note.

The adjustment will be incorporated as a baseline adjustment to each local authority’s CSSB allocations in 2027 to 2028. The CSSB per pupil rates will also be adjusted to take account of the decrease.

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