Budget Briefing: What’s in it for teachers?

Introduction

It was a Budget where the Chancellor was under pressure to deliver a tax and spending package that would fill a hole in the public finances and reduce the cost of living.

Though her speech was undermined by an unprecedented leak, Rachel Reeves still made a raft of announcements that will affect teachers’ finances.

Here Steve Renfrew, Head of Education at Wesleyan Financial Services, gives his reaction.

Will income tax rise?

The Chancellor froze Income Tax thresholds for a further three years until 2031.

Years of frozen thresholds and rising income in line with inflation has meant a further squeeze on teachers take home pay.

It risks making teaching less financially viable for early-career educators and pushing more experienced teachers to consider early retirement.

Ultimately, further erosion of take-home pay doesn’t just affect teachers’ wallets, it threatens recruitment, retention and the stability of the education system.

What does this mean for my pension?

Thankfully, the Chancellor decided not to take away the option for members of the Teachers’ Pension Scheme to take 25% of their pot as a tax-free lump sum, up to a maximum of £268,275.

Teachers will be relieved to see no change to the tax-free lump sum today, particularly after so much chop and change in recent years.

The tax-free cash is often integral to a retiring teachers’ financial goals, so to see it remain intact is good news indeed.

We hope that this stability continues – long-term, retirement planning relies on stability, and while reform can deliver improvements, sudden and significant disruption can undermine confidence and throw well-considered plans into disarray.

Will my savings be impacted?

And the Chancellor also moved to reform Individual Savings Accounts from April 2027, with the aim of encouraging more retail investors.

While the £20,000 annual investment limit remains, £8,000 of that must now be invested in a stocks and shares ISA, although over 65s are exempted from this rule.

Another important consideration for investors is the Chancellor’s decision to increase tax rates on dividends, savings and property income - all by 2%. Dividend tax will rise by 2% from April next year, and savings and property taxes from April 2027.

Anything that encourages more teachers to start investing gets our backing – but it's crucial to take time understanding what's available before you commit your money to the stock market.

When it comes to investing, there's no single solution that works for everyone.

What makes sense for you depends on your own financial goals and how comfortable you are with things like market ups and downs.

Take 'smoothed funds', for instance – these can sit within a Stocks & Shares ISA and help even out the highs and lows of investing. If you're new to this and the idea of daily market movements makes you anxious, this type of approach could be worth exploring.

How will the cost of living be impacted?

Motorists were singled out in the Chancellor’s revenue raising measures.

After 16 years of being frozen, Fuel Duty will be defrosted in September 2026, at which point phased increases will be imposed until April 2027, and after that the rate will grow annually in line with inflation.

And owners of electric vehicles will be hit with a new Road Charge of 3p per mile, while plug-in hybrid drivers will pay 1.5p per mile, which the government says represents around half the Fuel Duty paid by petrol car owners.

This comes in from April 2028 and will rise every year with inflation.

Everyone’s circumstances are different, which is why building a financial plan around your own needs is vital. A Specialist Financial Adviser from Wesleyan Financial Services can help you create a plan tailored to you—one that keeps your money working hard for the future.