The government has unveiled a landmark overhaul of pensions drawdown and has abolished the 55% tax on pension withdrawals at retirement, meaning no one will have to buy an annuity.
From April 2015 people will be able to access pension savings as they wish at the point of retirement, subject to their marginal rate of income tax, rather than the current 55% charge for full withdrawal.
However the retirement age, for accessing private pension savings without a tax charge, will rise from 55 to 57, to reflect increases to the state pension age, although not until 2028.
The chancellor said the majority of people would still purchase an annuity, but the changes would allow individuals to withdraw their savings when they wanted, subject to the marginal rate of income tax.
He said: 'Let me be clear, no one will have to buy an annuity.’
The Treasury said: 'We have introduced the most fundamental reform to the way people access their pensions in almost a century by abolishing the effective requirement to buy an annuity, giving people much greater freedom over how they access their pension savings.’
Chancellor George Osborne announced that from 27 March 2014 the guaranteed pension income required for flexible drawdown will be cut from £20,000 to £12,000.
The capped drawdown limit will also increase from 120% to 150% of the Government Actuary's Department rate to allow more flexibility to those who would otherwise buy an annuity.
The government said that due to these changes it expected some people will draw down their pensions sooner to suit their situation and this will increase income tax revenue in the short to medium term.
The Treasury said: 'In this parliament, the government has already removed the requirement to annuitise by age 75, and introduced flexible drawdown of pension savings for those who meet a minimum income requirement in retirement. This Budget announces further radical changes that will offer people more options in how and when they access their defined contribution pension.'