People who have already taken their tax-free lump sum will be given more time to decide what they want to do with the rest after the government scrapped the rule forcing action to be taken within six months.
The move comes alongside the Chancellor's sweeping pension reforms, the first tranche of which come into force today.
The government said it would introduce legislation in the Finance Bill 2014 to ensure people do not lose their right to a tax-free lump sum if they would rather use the new flexibility this year or next, instead of buying an annuity.
The changes are designed to give thousands of people more control over their pension savings and give about 85,000 ‘much greater freedom to drawdown their pension'.
Chancellor George Osborne said: "From today, over 400,000 hardworking people will have new choices about how to invest or spend their hard-earned retirement savings.
"The pensions reforms in my Budget have struck a chord with many. The reaction to the Budget reminds us all of a simple truth: when people are given more choice over their own lives they warmly welcome it. These reforms are part of our long term plan to create a more secure economic future for Britain."
From today the government has:
- Cut the minimum income requirement to access flex drawdown from £20,000 to £12,000
- Raised the capped drawdown limit from 120% GAD to 150%
- Almost doubled the size of the total pension saving that can be drawn down entirely and taken as a lump sum to £30,000 without incurring the 55% tax charge
- Increased the size of a small pot that can be taken as a lump sum - regardless of total pension wealth - to £10,000. It said this would benefit an additional 32,000 people.
- Increased the number of small personal pension pots that can be taken as lump sums from two to three.
The government had already scrapped the need to buy an annuity by age 75 but many people were still effectively railroaded into buying the lifetime products, the note said.
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