Chancellor George Osborne has announced that in April 2015, people over the age of 55 will get full access to their pension fund.
The Treasury has stated that people should be entitled to full control of their pensions, and be able to decide what they would like to do with their own money.
According to research conducted by an investment firm, one in five who will take money out of their fund will spend some of it on holiday breaks, and 8% are expected to purchase a new car.
If the research estimates are correct, the Treasury could benefit from a tax windfall of up to £1.6bn.
One survey has concluded that the majority of people are unaware of how much they will get taxed if a substantial amount of savings is removed from their pension fund. It is also found that the majority of people who are not aware of the rise in tax rates tend to be those with larger savings.
High tax rates
The head of pensions at Hargreaves Lansdown, Tom McPhail, has previously warned that allowing pensioners to withdraw large amounts of money from their fund could spark a mis-selling scandal. He also thinks that investors should be in control of their investment without the worry of being hit by a huge tax bill.
Currently, people who want to withdraw their money are allowed to take 25% of their pension fund tax free. After that their withdrawals will be taxed on the rate of their income.
If a person pays 20% income tax currently, they might have to pay the 40% tax rate if the pension withdrawal takes them over the threshold.
You can find more information on pensions and withdrawing funds at the Citizens Advice Bureau.