Allowing unlimited income from pensions is a very clever move by the Chancellor that has the potential to increase tax revenue where previously there would have been none. Perhaps the best way to explain this would be by way of an example.

Imagine that you wish to retire and have amassed an accrued pension fund of £40,000. You decide to take your full 'tax free' cash entitlement of 25%, giving you a lump sum of £10,000. The remaining £30,000, whilst retained in a pension wrapper of sorts, would be subject to income tax as and when income was taken.

Perhaps you are only entitled to the basic State Pension giving you £144 per week (£7,488 per annum - from 2016). With the Personal Allowance rising to £10,500, you would be allowed to earn £3,000 before paying tax. With the best will in the world, if the £30,000 was used to purchase an annuity, you would be fortunate to get £1,500 a year on a single life, level basis. This means that the total income would never exceed the Personal Allowance and therefore no tax will ever be paid.

However under the new rules, should you elect to take the entire pension fund immediately, the first 25% (£10,000) would be tax free, with the remaining balance of £30,000 subject to income tax. Taking the Basic State Pension of £7,488 into account, the first £3,000 or so would be within your Personal Allowance of £10,500 and therefore not taxed, with the excess £27,000 taxed at 20%, giving the Exchequer £5,400 upfront.

It would be very tempting to simply spend this cash on maybe a new car, a holiday, home improvements etc but with no secure income in place over and above the State Pension, what will happen when the cash runs out?

Many commentators are stating that this is the 'death' of the annuity but for those who need a guaranteed income, paid for life (and cannot trust themselves to manage the fund), there may be very few alternatives. Perhaps this is the time that Guaranteed Income plans will come into their own - with research stating that investors would pay an additional 1% for a guarantee. One this is for sure, advice leading up to retirement is more important than ever.