Five million pensioners will be able to cash in their annuities for a lump sum payment from April 2017, the Treasury has confirmed.
The change, announced following the completion of a consultation launched earlier this year, will put existing pensioners on the same footing has new retirees who have been able to take a cash lump sum since April.
Economic Secretary Harriett Baldwin said there would be a comprehensive consumer protection package to ensure people make informed decisions about their retirement savings.
It will include a requirement for people to seek independent financial advice before selling annuities worth above a set value.
"For most people, sticking with an annuity is the right thing to do. But there will be some who would welcome being able to draw on that money as they choose - the same freedom we gave people approaching retirement in April this year," Ms Baldwin said.
"People who've worked hard and saved all their lives should be trusted to make the right decision for them and with the help of the regulator we will ensure these people have the right information to do that."