The UK’s Autumn Budget 2025, unveiled by Chancellor Rachel Reeves on Wednesday, November 26, has triggered a wave of reactions across the country, with sweeping changes set to affect millions of households, savers, pensioners, and businesses. The budget, which aims to address fiscal challenges while supporting vulnerable groups, introduces new tax rules, benefit reforms, and cost-of-living measures—each drawing both praise and criticism from experts and the public alike.
One of the most hotly debated changes is the introduction of a £2,000 cap on salary sacrifice pension contributions. Currently, employees can use salary sacrifice schemes to bolster their pensions without any cap before National Insurance contributions (NICs) apply. But starting April 2029, only the first £2,000 of pension contributions made through such schemes will be exempt from NICs. Contributions above this threshold will be taxed in the same way as other employee pension contributions, meaning both employer and employee NICs will be due on the excess. According to the Office for Budget Responsibility (OBR), this move is projected to raise £4.7 billion in 2029/30 and £2.6 billion in 2030/31, as reported by The Telegraph.
Chancellor Reeves defended the measure in Parliament, stating, “I am introducing a £2,000 cap on salary sacrifice into a pension, with contributions above that taxed in the same way as other employee pension contributions. That is a pragmatic step so that people, especially on low and middle incomes, can continue to use salary sacrifice for their pension without paying any more tax than they do now. And to give individuals and employers time to adjust to these new arrangements, these changes will come into effect in 2029.”
However, the announcement has not been without controversy. Critics warn that capping salary sacrifice will discourage workers from saving for retirement and could increase pressure on the state pension system. Michelle Ferguson, Director at CBI Scotland, commented, “Adding national insurance to salary sacrifice pension contributions curtails savings and pushes up the cost of employment.” Steve Hitchiner, Chair of the Tax Group at the Society of Pensions Professionals (SPP), echoed these concerns, stating, “Abolishing salary sacrifice for pensions will affect the take home pay of millions of employees—especially basic rate taxpayers—and is a tax on working people, in spirit if not in name. It is also another sizeable cost to employers and, perhaps most importantly, its removal will reduce pension saving.”
Jon Greer, head of retirement policy at Quilter, went further, calling the cap “a deeply misguided move.” He explained, “At a time when the Government acknowledges that tomorrow’s pensioners risk being poorer than today’s, policy should be focused on incentivising saving and not dismantling one of the most effective tools we have. Salary sacrifice has long been a cornerstone of workplace pension strategies, helping millions boost contributions and plan with confidence. Restricting it will inevitably lead to cutbacks.” According to a Quilter survey, one in four respondents said they would stop using salary sacrifice if tax benefits were reduced, while nearly one in five would contribute less.
Rebecca Williams, divisional lead of financial planning at Rathbones, described the change as “a blunt instrument that risks doing more harm than good.” She argued that it would strip away a key incentive for employers to boost pension contributions and undermine efforts to tackle the retirement savings gap. “Worse still, it sends the wrong signal at a time when we should be encouraging long-term financial resilience, not making it harder,” she said.
Sir Steve Webb, a former pensions minister and partner at consultants LCP, questioned the effectiveness of the measure, suggesting that delaying implementation until 2029 “creates a huge opportunity for firms to restructure the way that they offer pay and pensions in order to mitigate or eliminate this new charge. There is a high probability that this policy will only raise a fraction of the amount expected by the Chancellor.”
Beyond pensions, the Autumn Budget 2025 introduced a raft of other changes. From April 2026, the costs of certain green schemes will be removed from household energy bills, saving the typical dual-fuel household around £150 a year, according to government estimates cited by MoneySavingExpert.com. State Pension payments will see an above-inflation rise of 4.8% from April 2026, with the full New State Pension increasing from £230.25 to £241.30 per week, and the full Old State Pension rising from £176.45 to £184.90. This uplift is in line with the ‘triple lock’ mechanism, which ensures pensions rise annually by the highest of inflation, average earnings, or 2.5%.
In a move welcomed by campaigners, the two-child Universal Credit limit will be lifted from April 2026, a change expected to benefit 450,000 children and help tackle child poverty. The national minimum wage will also rise by 4.1% for workers aged 21 and over, increasing from £12.21 to £12.71 an hour. For younger workers and apprentices, the increase will be even higher.
Other notable measures include the freezing of regulated rail fares in England until March 2027—the first such freeze in 30 years—and the extension of the freeze on prescription charges in England at £9.90 for the 2026/27 period. The budget also reduces the cash ISA limit for those under 65 from £20,000 to £12,000 a year starting April 2027, although the overall ISA allowance remains at £20,000.
Martin Lewis, founder of MoneySavingExpert.com, weighed in on several of these changes. On the cash ISA cut, Lewis remarked that the change “isn’t as bad as it could’ve been,” given that the overall ISA allowance remains untouched. Lewis also highlighted the impact of frozen income tax and National Insurance thresholds, warning that “freezing thresholds while average earnings rise means people pay a bigger proportion of their income in tax.” The OBR estimates that these freezes will push 780,000 people into paying income tax for the first time, and 924,000 into higher tax bands—a phenomenon known as ‘fiscal drag.’
The Chancellor also announced a crackdown on state pensions paid to overseas claimants. From now on, people living abroad will no longer have access to the class two voluntary National Insurance contributions system, and the required residency for claiming a state pension will increase to 10 years. Reeves told the Commons, “Taxpayers’ money should not be spent on pensions for people abroad who only lived here for a couple of years and may never have paid a penny in tax.”
Other reforms include changes to the Motability scheme, which will no longer allow access to luxury vehicles, and a new Council Tax surcharge for high-value homes worth over £2 million in England from April 2028. The Help to Save scheme, which supports low-income savers, will be made permanent and expanded to an extra 1.5 million people from April 2028.
As the dust settles on the Autumn Budget 2025, it’s clear that the government is walking a tightrope—balancing fiscal responsibility with the need to support households and encourage savings. But whether these measures will achieve their intended goals or trigger unintended consequences remains to be seen. For now, millions across the UK are bracing for changes that will touch nearly every aspect of their financial lives.
