British government shakes up pensions and savings

* Budget measures include relaxation of annuity rules

* Tax-free savings limit raised

* Insurers see shares slide, Hargreaves Lansdown jumps

By Jemima Kelly

LONDON, March 19 (Reuters) - British savers will be givenmore access to their pension pots and allowed to put away moremoney tax-free, in what the UK finance minister said was thebiggest shake up in pensions in nearly a century.

George Osborne's announcement on Wednesday that retireeswill not have to buy annuities and be allowed to take more moneyfrom their pension pots as a lump sum sent annuity providerssharply lower in a flat FTSE 100 share index.

"Pensioners will have complete freedom to draw down as muchor as little of their pension pot as they want, anytime theywant," he told the House of Commons in an annual budget speech.

"Let me be clear: no one will have to buy an annuity."

Consultants KPMG called the proposals "a game changer forthe insurance industry", which could now face lower volumes ofnew business in a 12 billion pound a year market as demand fortheir annuity products falls away.

That perception sent shares in Legal & General,which according to Bank of America Merrill Lynch makes a quarterof its core profits from annuities, heading for its biggestdaily fall in five years as shares dived 8 percent at 1618 GMT.The shares were the biggest loser in the FTSE 100.

Aviva's shares were down over 7 percent, while sharesin Standard Life over 3 percent lower and Prudential's lost almost 3 percent.

Osborne called his shakeup the "most far-reaching reform" topensions since 1921, aiming to encourage more people to fundtheir own retirement as the government seeks to reverse thedamage caused to savings by record low interest rates since thefinancial crisis.

THRESHOLDS

Osborne increased the threshold at which a single definedcontribution pot could be taken as a lump sum by five times to10,000 pounds ($16,600) and cut the minimum income requirementfor flexible drawdown to 12,000 pounds from 20,000 pounds.

He also said total pension savings that could be taken as alump sum would be doubled to 30,000 pounds, with the changes tocome into effect on March 27th.

Otto Thoresen, director general of the Association ofBritish Insurers (ABI), said it was right for people to beoffered a range of options to generate retirement income.

"It is crucial to ensure that customers have the informationthey need to make the right choice for their circumstances," he said.

The annuity market, which the ABI said was worth almost 12billion pounds last year, was called "disorderly" in a review bythe Financial Conduct Authority, the UK watchdog, which accusedproviders of maximising profits at the expense ofsavers.

Osborne also announced that Individual Savings Accounts(ISAs), which allow money to be put away tax-free, would besimplified into a single "New ISA" rather than separate cash andequity ISAs, with a new higher limit of 15,000 pounds a year, upfrom 11,520 pounds.

Hargreaves Lansdown, which sells ISAs, was thebiggest winner on the FTSE 100 in afternoon trade, with sharesup over 14 percent at 1619 GMT.

"The budget contained a lot of good news for savers andinvestors," said Danny Cox, head of financial planning atHargreaves Lansdown. "The simplification of ISAs and opportunityto invest more tax free is a great boost."

But Paul Macro, savings expert at consultant Mercer, warnedthat allowing people to take their savings as a lump sum wentagainst the idea of aiming for a retirement income.

"Clearly all of this is good for flexibility but does goagainst the 'save for income in your retirement' mantra ifpeople can simply take all as a lump sum," he said.

Among other announcements was a new pensioner bond, which isexpected to offer those over 65 rates of 4 percent over threeyears.

"People who have worked hard and saved hard all their lives,and done the right thing, should be trusted with their ownfinances," the finance minister said.

($1 = 0.6034 British Pounds) (Additional reporting by Simon Jessop and Alistair Smout;editing by Chris Vellacott and Keiron Henderson)