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London - Britons coming up to retirement will find it easier to spend their pension savings early, according to government plans announced on Tuesday that extend a big overhaul of pensions set out earlier this year.
Finance minister George Osborne said in March that Britons with private pension savings would no longer be required to convert them on retirement into an annuity that provides a fixed income for life.
Tuesday's changes will allow Britons aged over 55 to take money as often as they like from their pensions, although they must pay income tax on three quarters of the sum they withdraw.
Previous rules allowed over-55s to withdraw a quarter of their money tax free in a one-off transaction, with restrictions on how the remainder of their money was then invested.
"People who have worked hard and saved all their lives should be free to choose what they do with their money, and that freedom is central to our long term economic plan," Osborne said in a statement.
But Britain's Trades Union Congress said the plans were poorly thought out and being rushed in ahead of May's election.
"The suggestion that savers could treat their pension savings as a bank account is irresponsible," said TUC General Secretary Frances O'Grady.
Most Britons coming up to retirement have some form of work-related pension, but for those without savings, the state pension and associated benefits of around £150 ($240) a week is less than a third of average weekly earnings.
Encouraging Britons to withdraw pensions savings early could create a tax windfall for the finance ministry, as it brings forward tax receipts which would otherwise be paid later.
But it also risks reducing demand for long-term government bonds from insurers and pension funds, up to now the main buyers of this type of debt as it offers regular interest payments long into the future which match up well with pension liabilities.
March's announcements came as a shock to Britain's pensions and insurance industry, hitting their share prices, and also caused a fall in ultra-long bond prices, increasing the cost to the government when it issues new long-dated debt.
Marc Ostwald, a bond strategist at ADM Investor Services International, said the latest changes, while smaller, risked exacerbating this.
"If people are taking money out, you can't be as committed to the long end of the bond market. You need more cash to cope with withdrawals," he said.
Britain's government debt has a longer maturity profile than almost all other advanced economies, in large part because of demand from private and job-linked pension schemes.
Pensions industry experts said the changes would raise pressure on funds to offer products other than standard annuities and the need for advice for savers struggling to navigate a complex range of options.
"The industry must adapt by producing new products that allow savers to make full use of their new freedoms, but also provide support and guidance to help them use them responsibly," said John Fox, director of pensions provider Liberty SIPP.
