On 26 November, Rachel Reeves delivered her Autumn Budget. After months of speculation, the chancellor announced her plans approximately 35 minutes after the contents of her speech had been released, following an error by the Office for Budget Responsibility (OBR).

Tax rises of £26 billion and increased borrowing provided fiscal “headroom” in a budget that – as the prime minister conceded – “asked everybody to contribute”.

Among several high-profile announcements were the introduction of a so-called “mansion tax”, removal of the two-child benefit cap, and something of a mixed bag for business owners, with potentially costly minimum wage rises and reduced reliefs countered (in some sectors) by lower rates.

But what will Reeves’ Budget announcements mean for your pension and retirement?

Keep reading to find out.

1. National Insurance-efficient contributions via salary sacrifice will be capped

The main pension announcement turned out to be a surprise cap on the pension contributions you can make via salary sacrifice without paying National Insurance contributions (NICs).

Following changes to employer National Insurance (NI) in the 2024 Autumn Budget, employers currently pay NI at 15% above a threshold of £5,000. Salary sacrifice, however, is a way to mitigate the impact of these changes.

By effectively lowering their salary, employees decrease their NICs and could even increase their take-home pay. The exchanged amount is money that employers didn’t have to pay NI on, benefiting business owners and employees alike.

The scheme is particularly beneficial for high earners, who can afford to sacrifice more and so “save” more.

Employers then opt to pay their NI savings back into the business, or into employees’ pensions as an added staff benefit and incentive to save.

In her 2025 Autumn Budget, Reeves confirmed that this scheme cost the government £2.8 billion in 2016/17, with that figure set to treble (to £8 billion) by 2030/31.

The chancellor went on to confirm that from 6 April 2029, employer and employee NICs will be charged on pension contributions above £2,000 a year made via salary sacrifice. While employees on low and middle incomes will broadly be unaffected, higher earners can expect to pay increased NI, and their employers can too.

What it means for you

Whether you’re an employer or an employee, you’ll first need to remember that this change doesn’t come into force until 2029.

This time frame is partly to allow employers to put systems in place to manage the new regime, as calculations will be required to ensure NICs are paid once the cap is breached. This could prove costly for businesses.

As an employee, you’ll need to consider whether you’ll breach the cap (or might do so by 2029) and whether salary sacrifice remains a cost-effective way to make pension contributions. We can help here, so get in touch.

2. An extension to already frozen allowances will exacerbate the negative effects of fiscal drag

Despite speculation that Reeves might break a key Labour Party manifesto promise and raise Income Tax or NI rates, the chancellor opted against raising either.

She did, though, choose to further extend existing freezes to Income Tax thresholds and the nil-rate and residence nil-rate bands for Inheritance Tax (IHT).

Income Tax bands will remain at their current level until 2031. IHT thresholds, meanwhile (already frozen until 2030 in last year’s Autumn Budget), were extended for a further year, to 2031.

These freezes are effectively stealth taxes that contribute to fiscal drag. You’ll likely see your Income Tax bill rise over the next few years, as wage increases aren’t matched by rising thresholds.

Just last month, IFA Magazine reported on the rising number of Brits now paying the highest rate of Income Tax. The additional rate has been 45% since 2013. Had the income threshold risen in line with inflation, it would kick in at £211,562, more than £86,000 higher than the current threshold.

What it means for you

With inflation remaining high and the cost of living crisis continuing, further tax rises will see families squeezed even more. The stealth tax of frozen allowances will drag more and more workers into higher rates of tax.

You might begin by paying into your pension using salary sacrifice to effectively lower your salary and reduce Income Tax, but this strategy will need a rethink before the cap is introduced in 2029.

Simple budgeting remains key, and we can help here, making sure that your long-term plans remain on track no matter what financial changes are introduced.

Other pension announcements

• Pensions will still be brought into the IHT net from 2027
• The pension Annual Allowance remains at £60,000
• Reeves confirmed the government’s commitment to the triple lock.

Get in touch

If you have any concerns about the changes announced in the Budget and their potential impact on your long-term plans, get in touch. Email info@thepensionplanner.co.uk or call 0800 0787 182.

Please note:

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Workplace pensions are regulated by The Pensions Regulator.