For people over the age of 55, the ability to draw their pension fund entirely as cash is now with us, leading to a surge in tempting adverts designed to lure new customers.

Instead the very nature of the pension freedom means that as well as the ubiquitous Lamborghini purchase, the freedom has given rise to more choices than ever before.

The first thing that needs to be considered is the primary purpose of a pension. Why did you do it in the first place? Was it save tax? Was it to get rid of some surplus cash in the building society? Or was it to provide yourself with an income when you stopped work?

The freedom to withdraw a pension policy entirely as a lump sum should only be considered appropriate in certain circumstances. The taxation issue alone should make most people think twice about the consequences of lump sum withdrawal. The tax payable has not been well publicised in my opinion with many commentators more eager to stress just how bad annuity rates were and indeed are.

But let's consider an example. A person earning say £33,288 a year, which is the average income for someone about to retire according to official statistics

* They have a pension fund worth £20,000 and decide to take all of it at retirement under the new rules
* The first 25 per cent or £5,000 is tax free and the remaining £15,000 is taxed as income
* Earnings of £32,288 plus the £15,000 taxable portion of the pension money make a total income of £48,288
* This pushes the individual over the higher rate tax threshold of £42,285
* The tax payable on the £15,000 pension payment would be £4,200.60, or an effective tax rate of 28 per cent.

Annuities of course are not totally obsolete and indeed many people who want the certainty of income with no unpredictability will still turn to annuities to withdraw their pension funds.

But for people who want the freedom to take advantage of the new rules, yet minimise the tax payable may wish to consider the Flexible Drawdown approach.

Flexible Drawdown in the past used to mean considerable investment risk, with mortality drag, investment risk, market risk and sustainability risk all being very apparent.

Ahead of the new pension reforms however, a new breed of Flexible Drawdown has been launched to mitigate some of these risks and ensure a smoother retirement journey incorporating guaranteed retirement income levels. These, in our opinion, are the solutions which will attract a lot of new customers in the forthcoming months.

Ian Howell DipFA MIFS