Autumn Budget 2025 - What are the key points from an employment, incentives and pensions perspective?

The Chancellor of the Exchequer, Rachel Reeves, today unveiled the Autumn Budget against a backdrop of sustained economic pressures and ongoing labour market changes. As anticipated, the Budget brings a suite of important measures, many of which will have wide-ranging consequences for employers and individuals. This blog post sets out a summary of the key announcements from an employment, incentives and pensions perspective.

• Tax thresholds frozen: The personal income tax and employer NICs thresholds will remain frozen for an additional three years from 2028-29. This means the income tax personal allowance will stay at £12,570, the higher rate threshold at £50,270, the additional rate threshold at £125,140, and the NICs secondary threshold at £5,000 until April 2031. Employers should anticipate continuing pressure on employee take-home pay, which may affect wage bargaining and benefit expectations.
• National Minimum Wage and Living Wage increased: Both will rise from April 2026, following the Low Pay Commission’s recommendations. This is not a surprise for employers, as annual increases have become a regular feature of recent budgets. Nonetheless, they will need to budget for increased wage costs and review pay structures for compliance from next April.
• Delay to car ownership benefit-in-kind changes: Changes to bring employee car ownership schemes into scope of the benefit-in-kind rules previously set for April 2026 are now delayed until April 2030 (with transitional arrangements until April 2031). As a result, businesses will have more time to review, renegotiate or phase out these car schemes.
• EMI scheme eligibility expanded: Company eligibility limits for EMI schemes will increase from April 2026, enabling scale-ups and larger start-ups to offer tax-advantaged share options. In particular, the government will increase the employee limit to 500, the gross assets test to £120 million, and the company share option limit to £6 million from April 2026. The maximum holding period will increase to 15 years including in respect of existing EMI contracts. The EMI notification requirement will also be removed from April 2027. Alongside this, the government is consulting on further reform of EMI schemes and CSOPs in a call for evidence on tax support for entrepreneurs (published today). As a result of these changes, it is likely that more employers will be able to use tax-favoured share-based incentives to attract, retain and reward key talent.
• Employee Ownership Trust (EOT) relief restricted: EOT capital gains tax relief on qualifying disposals will drop from 100% of the gain to 50% of the gain, alongside modernised anti-avoidance measures for share exchanges and reorganisations. Businesses considering EOT structures should therefore reassess the value proposition and plan for increased tax liabilities.
• SIP and SAYE consultation update: No immediate changes to SIP and SAYE schemes are proposed, but the government and HMRC will review responses to a consultation on non-discretionary tax-advantaged share schemes (which was also published today) and consider next steps. Employers should keep their eyes open for any updates to guidance and factor in possible improvements or clarifications when designing their share plans going forward.
• Taxation of salary sacrifice pension contributions: From April 2029, salary sacrifice pension contributions above £2,000 a year will be subject to NICs. Currently such contributions are treated as employer contributions, so are exempt from both employer and employee NICs. Under the new policy, any salary sacrifice pension contributions above £2,000 a year will be treated as ordinary employee contributions, such that they are not subject to income tax but will be subject to employer and employee NICs, while ordinary employer pension contributions remain NIC exempt. Employers who operate salary and bonus sacrifice arrangements will need to consider the impact on their arrangements. The delayed introduction does mean that employers have some time to work though the detail.
• Surplus payments from DB pension schemes: From April 2027, the government will enable well-funded DB schemes to pay surplus funds directly to scheme members over the normal minimum pension age, “where scheme rules and trustees” permit it. This may become more relevant once the provisions to allow refund of surplus in the Pension Schemes Bill are in force, as part of the wider negotiations between employers and trustees.
• PPF and FAS inflation protection increased: Currently payments which reflect pensions accrued before April 1997 are not increased while in payment. From January 2027, CPI-linked increases, capped at 2.5% a year, will be provided where the original scheme did provide increases. This will have an impact on PPF funding levels, which are currently sufficiently strong to have allowed the PPF to announce a nil rate levy for the current year. We can only speculate whether this indicates a sympathy for pensioners who do not benefit from indexation on their pre-1997 benefits which might in due course be expressed by changes in pension indexation requirements more widely.

As ever, the Autumn Budget introduces a raft of measures that will have important implications for employers, pension schemes and trustees, and individuals across the UK. Some changes may lead to increased costs and force businesses to reassess their workplace benefit offerings, whereas others will offer new opportunities. 

For more information on the impact of these measures, please speak to the authors of this blog post or your usual Freshfields contact.