Half a million savers free to cash in their pension pots from MIDNIGHT tonight (but face shock tax bill if they do)

- People aged over 55 free to decide what to do with their retirement savings
- No longer be forced to buy an annuity for a guaranteed income for life
- Experts have warned savers they face big tax bills if they cash in pension
- First 25% of people's pension is tax free but rest is taxed at marginal rate

By Tom McTague, Deputy Political Editor for MailOnline
Published: 16:42 GMT, 5 April 2015 | Updated: 19:14 GMT, 5 April 2015

More than half a million people will be able to cash in their pension pots from midnight tonight in the biggest savings shake up in a century.

People aged 55 and over will be given new powers to decide what to do with their retirement savings and will no longer be forced to buy an annuity – which pays a monthly income for life.

Instead people will simply be allowed to cash their savings and spend it how they please in what has been dubbed 'pensions freedom day'.

George Osborne said the changes amounted to a 'permanent revolution' and were the 'biggest changes to pensions in 100 years.

The Chancellor told Sky's Murnaghan programme: 'What it means is that people who have worked hard and saved hard can have access to their pensions savings.'

'Many people will have assumed they have to buy an annuity,' he said. 'That's not the case anymore.'

But he added: 'Take your time. You don't have to make this decision today or tomorrow.'

Mr Osborne urged people to make use of the government's guidance scheme and take their time before making a decision on what to do with their pension pot amid warnings that thousands of savers will be hit with huge tax bills.

Overall, some 540,000 people will be able to take control of their savings tomorrow.

But the Institute for Fiscal Studies has said many people face paying tens of thousands of pounds in income tax if they cash in their pensions pots.

The first 25 per cent of people's pensions is tax free and the rest is taxed at whatever rate people currently pay – meaning higher earners face losing 40 per cent of their cash to the Government.

The Government has set up a 'Pension Wise' guide for those approaching retirement amid concerns that some people may be hit by pension scams, or run out of money too early.

Labour have warned that the government has not thought through the risks of 'rip-off charges' being taken from people's savings.

'That's why we welcomed the announcement by David Blake's Independent Review of Retirement Income that they are studying the case for a new charge cap on pension products offered to savers by their pension provider to replace annuities,' said a Labour spokesman.

David Cameron today admitted that it was 'a big change' but said: 'It is their money, they've saved it and they should be able to use it as they wish. That is the principle we're introducing.

'There is lots of advice being made available including by the government but I think it is important revolution. You saved it, you earned it, it's yours to spend as you choose.'

The PM added: 'We want people to make the right choices for themselves. It is their money, they saved it, they earned it, and they should be able to spend it as they choose.

'Everybody should take proper advice and make sure they are doing what is right for them. But the fundamental principle is we trust people to spend more of their money as they choose.'

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