Under new rules announced today, pension savers will be able to take their entire pension pot as a cash lump sum.

Until now savers have largely been forced to buy an annuity with their pension savings.

Osborne also said each and every defined contribution (DC) saver would get “free impartial advice on how to get the most of their pension”.

Osborne said 13 million DC savers were currently railroaded towards buying an annuity but this would end.

“Tax rules around these pensions suggest pensioners can’t be trusted with their own pension pots. I reject this view,” he said.

Tax charges on lump sums will also be radically changed.

He explained that at present people can take a quarter of their retirement pot free of taxation, but if they want to take more it is subject to a 55% tax charge.

However, this will now be reduced to a ‘normal tax’ of 20% for most pensioners.

Richard Lloyd, executive director of consumer group Which? welcomed the move but said it would be crucial for retirees to receive impartial advice:

“The overwhelming majority of people who buy an annuity from their existing provider could get a better deal on the open market, so today’s announcement should help stop millions of people from losing out on thousands of pounds of retirement income.

“The key to making this work will be a requirement on providers to give consumers high quality, impartial advice on their options across the whole of the market, with maximum protection at this critical time in their financial lives.”