Employees with defined contribution pension schemes will no longer be forced to buy annuities before the age of 75, and will be allowed to take out up to a years’ worth of funds before retirement.
For those who can prove a secure pension income of at least £20,000 a year, there will be no limit on the amount that they can withdraw early.
The Association of British Insurers welcomed the changes, adding: “The majority of people have quite small pension pots on retirement and this safety net will mean that in practice they are still likely to buy an annuity to make sure they have an income through retirement.”
The Treasury estimates that around 12,000 people a year will be eligible to use the flexible pension draw-down rules.
Tax on pension funds left unspent at death has also been cut to 55 per cent from 82 per cent.
The rules will go through Parliament as part of the 2011 budget, and are set to come into force from April 2011.