George Osborne
Chancellor of the Exchequer, George Osborne, holds up his budget case for the cameras as he stands outside number 11 Downing StreetReuters

The Association of British Insurers has slammed the Chancellor George Osborne for not giving pension and annuity providers advanced warning of his radical reforms.

The ABI, which represents insurance companies in the UK, also claimed that the government has made a "wholly unacceptable" move by not clarifying certain rules.

The comments come after Osborne announced, among other reforms, that anyone over the age of 55 will be able to take their whole pension pot as cash from April 2015.

The policy means retirees will not have to take a compulsory annuity purchase in order to avoid a huge tax bill.

"Pension and annuity providers were given no advance warning ahead of the Budget changes that came into effect within a 10 day period and have been working round the clock since to help customers understand their choices," said Huw Evans, director of policy at the ABI.

"The government's announcement introduced a cliff-edge for customers and it is wholly unacceptable that a week after the Budget, HM Revenue and Customs has still not clarified the rules around whether tax free lump sums can be reversed for those customers who have just annuitised and wish to change their mind."

Legal and General, one of the UK's biggest annuity providers, saw its shares plummet by more than 13% after the government's announcement.

The FTSE 100 constituent, which sells financial products including life insurance, general insurance, and pensions, opened at 231p per share, but plunged to 198.10p as of 1443 GMT on 19 March.

But Fitch Ratings said it is unlikely that insurers will be hit by a credit rating downgrade after the private sector pensions bombshell.

However, the firm did warn that if the Chancellor's radical proposals are implemented, they would "significantly" reduce the £15bn-a-year UK annuity market.

Fitch explained that many savers would choose to access their pensions as cash or via drawdown products in preference to an annuity, particularly while annuity rates remain low.

"Annuities are a large and relatively profitable business for many life insurance companies, so any significant shrinking of the annuity market would be negative for their operating scale and earnings," Fitch said in a research note.