Teacher pay award to be funded through pension savings

The teacher pay award for 2026-27 will be funded “at a national level” from savings to employer contributions for support staff pensions, the government has claimed.

Education secretary Lucy Powell has set out the change in a letter to the NEU teaching union’s general secretary, seen by Tes.

Teachers have been offered a 3.5 per cent pay rise for 2026-27, as Tes first revealed.

However, schools were told that they would need to find the first 1 per cent of the rise.

The DfE said at the time it would provide £700 million in additional funding to schools.

In the run-up to the pay decision, the NEU announced it would launch a formal ballot for industrial action unless the government made a fully-funded, above-inflation pay offer.

Pension savings will not be the same for every school. Today’s announcement does not guarantee every school will have enough additional money or reduced costs to meet its share of the pay rise.

Will the 2026-27 pay rise be fully funded?

Today’s letter from Ms Powell states: “I understand you are concerned the funding available in 26-27 is insufficient to cover the costs of the recent pay award.

“I am therefore pleased to be able to update you that recent revaluations to the Local Government Pension Scheme will see a 4.9ppt reduction in employer contribution rates and deliver significant savings on schools’ pay bill for support staff.

“We can confirm this reduction in costs will not be clawed back, and as such, we are confident that schools will be able to cover the costs of the teacher pay award, at a national level.”

The NEU claims the letter amounted to a “significant concession” from the government and meant the teacher pay award would now be fully funded.

The union’s general secretary, Daniel Kebede, said the government had accepted “the reality that any teacher pay award must be fully funded”, and claimed the decision had plugged a £460 million hole in school budgets.

The new government had now accepted it was wrong to require schools to make cuts elsewhere to meet the pay increase, Mr Kebede said.

In light of the development, the NEU executive will discuss its response on 24 September.

Paul Whiteman, general secretary of the NAHT school leaders’ union, said the decision is “certainly welcome”.

He said: “We wrote to the previous chancellor about this in May of this year, and we are pleased that the new administration has heard and understood our demands.

“We will need to look carefully at the detail to determine whether this means the pay uplift is genuinely fully funded at an individual school level, but it certainly puts schools in a better position than they would otherwise have been.”

Savings will differ between schools

However, Ms Powell’s letter stops short of saying that every school’s pay award will be fully funded.

The 4.9 percentage point figure is an average across Local Government Pension Scheme (LGPS) pension funds, rather than a reduction that every school will receive.

An analysis of 2025 pension schemes from the LGPS advisory board found the average total employer contribution rate fell from 21.5 per cent of payroll costs to 16.5 per cent, following the latest valuation.

This is an average reduction of 4.9 percentage points - but the change at individual fund level ranged from 0 to a fall of 10.2 percentage points.

The board also says there was “significant variation” between funds and it expected “even more variation at the individual employer level”, because contributions are set for individual employers.

This means the benefits to individual schools and trusts will depend on the reduction from its local fund and on how much it spends on support staff who are members of the LGPS.

A school with few support staff, or whose employer pension contribution falls by less than the national average, could receive a smaller saving than another school with the same teacher pay bill.

Pepe Di’Iasio, general secretary of the Association of School and College Leaders, said the union was pleased the government had “seen sense and found a way of providing additional funding” for the pay award.

He added: “However, we note that the government has said only that this money will cover costs ‘at national level’ and we will be taking a close look at the implications at the level of individual schools.

“It should not need saying that every school must have the funding that it requires to pay its staff.”