Plans to reform the pensions market, which will prevent people from being forced into buying an annuity with their savings, were greeted as the biggest shake-up for retirement planning for two decades.
Industry experts said that they were surprised at the scale of the overhaul, which will allow people to take more money from their flexible pension plans each year and raise the ceiling for those wanting to take all of their savings as a lump sum.
Chancellor George Osborne said: “Pensioners will have complete freedom to draw as much or as little of their pension pot as they want, anytime they want. No caps. No drawdown limits.
“Let me be clear: no-one will have to buy an annuity.”
Pensions expert Ros Altmann said the reforms left her “almost speechless”, but stressed that people will need impartial advice to make sure they make the most of their savings.
The former Saga director-general said: “All defined contribution pensions look set to be freed from the annuity straitjacket that has so disadvantaged people in the past.”
David Macmillan, chief marketing officer at insurer Aegon UK, described the overhaul as a “breath of fresh air” for savers, while Barry O’Dwyer, managing director of adviser and workplace at Standard Life, said the group was “very happy” with the reforms, despite the inevitable impact they will have on sales of annuities, which let people buy a guaranteed income for life with their pension savings.
O’Dwyer said: “Annuities have suffered a double-whammy because of falling bond yields caused by quantitative easing and people living longer, and from a customer perspective they looked poor value for money. But they’re a good product if you want to insure yourself against running out of money in retirement.”
Among the changes announced by the Chancellor, those who have built up £30,000 across their pension pots will be able to take this as a lump sum, up from the previous “trivial commutation” limit of £18,000.
Those opting for a capped drawdown pension, rather than an annuity, will also be able to withdraw more money. Under current rules, people could take no more than 120 per cent of the value of an equivalent annuity each year, but this will now rise to 150 per cent.
In addition, savers with a flexible drawdown plan will only have to show they have a guaranteed annual income of £12,000, down from the previous £20,000 level.
Christine Scott, pensions expert at the Institute of Chartered Accountants of Scotland, said the “drastic” reforms “appear to have come out of the blue”.
She added: “This will increase demand for advice as pensioners try to work out the best thing to do with their lump sums.”
The Chancellor said he was providing £20 million over the next two years to help consumer groups and the industry develop more routes to advice, but with an estimated 320,000 people retiring with a defined contribution pension each year, industry insiders warned that this pot of money would not stretch far.
Mark Polson, of pension consultant Lang Cat, said: “I don’t know many advisers who’d be delighted to give advice for £60.”
He added: “This is the most far-reaching Budget in terms of pensions since I joined the industry in the mid-1990s.”