The changes are due to be included in the Taxation in Pensions Bill and will be in place by April 2015. The main policy announcement is that savers will no longer have to take their tax-free allowance within 18 months of becoming eligible for their pension income (typically at age 55).
This means savers will effectively be able to withdraw any amount from their pension savings at any time during retirement, 25% of which will be tax-free.
Under current rules those 55 and older may take up to 25% of their entire pot as a lump sum within 18 months, but then any further withdrawals will be taxed at a rate of 55%.
Ros Altmann, pensions adviser to the Treasury, predicted the changes "will be very popular" among savers, as it's a further move away from relying on products such as annuities.
But Hargreaves Lansdown head of pensions research Tom McPhail warned increasingly loose regulation could lead to a "retirement car crash".
"Millions of pension savers are being encouraged to withdraw their money at will," he said. "Managing longevity and investment risk is complicated. Many professionals struggle to get it right, so the idea that at least some inexperienced investors won’t get it wrong is recklessly naïve."
