The period preceding any Budget is always filled with uncertainty. Question marks hang over the measures that might be introduced and their potential impact on our pockets.

And the Autumn Budget 2025 was certainly no exception. Indeed, it was arguably more eventful than most, with the run-up featuring feverish speculation over a possible income tax rise as well as an eyebrow-raising “scene-setting speech” from the Chancellor of the Exchequer and even the mistaken pre-publication of analysis by the Office for Budget Responsibility (OBR).

When it did finally land, the Budget was revealed as a mixed bag – or a “smorgasbord” – of measures aimed at funding spending commitments and meeting fiscal targets. A summary of key points is available here.

Changes affecting the workforce

For workers, the absence of an increase in income tax was tempered by the extended freezing of thresholds, which will now remain in place until 2031. The OBR expects this to add a further 780,000 taxpayers over time, and to increase the proportion paying at the higher and additional rate from 15% in 2021/22 to 24% in 2030/31.

There were, however, increases in the National Minimum Wage and National Living Wage. The Chancellor confirmed that from April 2026, hourly rates would rise to £12.71 for over-21s, to £10.85 for 18-21 year-olds, and to £8 for 16-17 year-olds.

But while these announcements were welcomed by younger workers and those on lower pay, for companies, they signalled additional pressure on employment costs, further to the 6.7% rise in the National Living Wage and higher rates of National Insurance already introduced in April 2025.

And National Insurance contributions were the focus of further post-Budget concern for businesses in the area of employee benefits and, more specifically, salary sacrifice arrangements.

Assessing the impact

After rumours of a cap on the cycle to work scheme (which did not materialise), the Chancellor announced that an annual limit of £2,000 will apply to National Insurance relief on pension salary sacrifice arrangements from 2029.

After that date, anything over the cap would attract employer and employee National Insurance contributions. This is expected to raise £4.8 billion for the Treasury in 2029/2030 and £2.5 billion in 2030/2031.

Justifying the move, the government said it would not affect around three quarters (74%) of the estimated 7.7 million people who have such arrangements in place, since the £2,000 limit equates to an ‘average’ worker paying 5% of a £40,000 salary into their pension via a sacrifice arrangement.

However, an impact assessment from HM Revenue and Customs has indicated that as many as 3.3 million people – around 44% – would potentially be affected.

Pension saving implications

Those opposed to the cap have said it could reduce the appeal of salary sacrifice among businesses while also suppressing the amount some employees will put into their retirement pots.

Salary sacrifice has grown in popularity in recent years as a tax-efficient way of optimising pension saving. Essentially, employees agree to exchange – or ‘sacrifice’ – a proportion of their salary for a non-cash benefit – which in this situation takes the form of a pension contribution.

Because the employee’s taxable income is reduced, Income Tax and National insurance liabilities are also reduced. For employers, there are savings on National Insurance contributions, with the option to also pass these on to the employee.

Among those with arrangements in place, salary sacrifice has become a popular benefit. Research from Scottish Widows underlines this point, with 79% of those enrolled saying it makes them feel more confident about maximising their pension savings. A further 74% said feelings of financial security have a positive impact on productivity at work.

Knock-on effects

Despite these advantages, adoption rates for salary sacrifice schemes are comparatively low. Among a large proportion of the workforce, there is a lack of awareness and understanding that means potential pension benefits are not being unlocked to their full potential.

Experts have raised concerns that the limit imposed in the Budget will not encourage this gap to be bridged, while potentially leading those with existing arrangements to reconsider the amount they are contributing.

For companies, there are also concerns around additional NI costs, particularly in situations where there is an obligation to continue passing NI savings on to the employee – even when those savings are no longer being made. There is also likely to be an associated administrative burden, with changes to payroll systems and potentially salary sacrifice arrangements themselves.

Business leaders have warned these factors could have a negative knock-on effect. Indeed, research from insurance body the ABI and the Reward and Employee Benefit Association (REBA) has indicated that the incoming cap could lead 31% of businesses to reduce their contributions to an employee’s pension, and 45% to reduce other employee benefits and services.

Maximising the opportunity

Critics have also labelled it a missed opportunity to build on the positive momentum around salary sacrifice, to encourage higher levels of saving, and to help address the broader “crisis” around pension inadequacy.

Clearly then, for a relatively straightforward measure, there are potentially complex implications. But with a 2029 implementation date, there is still time for employees to benefit from existing arrangements.

And for employers it is important to use that time wisely to seek clarity on the implications and expert guidance on accommodating the incoming changes. With the right plans in place, companies can better manage the impact, maintaining a strong benefits proposition and ensuring employees are getting the maximum support in saving for their future.