In the past, unless you had very substantial savings, your only option was to buy an annuity, with any lump sum left upon your death facing a draconian 55 per cent tax.
Under the new rules, pensions have been set free from their locked box. Now investors will have greater choice than ever before, with the freedom to use their pension pot as they like from age 55.
What is more, the end of the death tax is a strong motivation to keep money in your pension rather than spending it, leaving those funds for your retirement or for care if necessary, but otherwise providing an inheritance for your family.
At age 55 investors will now have access to the whole of their pension pot with no limits on the income they can withdraw. A quarter of the fund can be taken tax free with the rest subject to tax at the marginal rate of income.
In the past Vincent McEntegart, manager of the Kames Diversified Income fund, says annuities were acceptable when yields were much higher because the initial amount you received seemed quite good relative to a bank account.
Holders worried less about dying and the profit going to the insurer, Mr Entegart says.
Now with yields so low and insurers assuming people live much longer, Mr Entegart says the initial amount of income is low and savers are all much more aware of the poor vale annuities represent. Negative media attention has helped too, of course.
Mr Entegart says retirees are being granted much more freedom to access their own pension pots as they see fit, and the rules around taxation when holders die are also being relaxed.
Rather than face a 55 per cent tax bill, Mr Entegart says family members can now receive the money with no tax liability as long as it remains in a pension product. Even if the product is cashed in, the recipient will only pay their own standard tax rate rather a punitive one.
Importantly, Rory McPherson, portfolio manager of Russell Investments, says the pension fund can now be invested to suit the risk profile of the individual investor and the investor retains control over their money.
This freedom is why so many multi-asset fund managers - and others - are currently making changes to the way they operate their funds so as to appeal more to the at-retirement market.
