The UK market for individual annuities will shrink by a whopping three quarters after the government's radical pension reforms, enabling retirees to avoid buying the products, come into effect next year.

According to Legal & General (L&G), one of Britain's biggest annuity providers, the amount of money going into annuities will drop from £11.9bn to £2.8bn a year after the Chancellor George Osborne's "pensions revolution" comes into force.

"We certainly expect to see more cash being taken out, either singly for small pots or across several years, and we expect to see more use of the housing asset as pots get depleted more quickly," Nigel Wilson, the chief executive of L&G, told investors.

The comments come after the Chancellor announced in his budget that anyone over the age of 55 will be able to take their whole pension pot as cash from April 2015, dropping the need for an annuity to avoid a hefty tax bill.

Osborne also explained that the lump sum, otherwise known as the trivial commutation limit, will jump from £18,000 to £30,000 on 27 March.

The move came under fire from the Association of British Insurers (ABI) as the government did not give pension and annuity providers advanced warning of the reforms.

Elsewhere, the Pensions Minister Steve Webb countered worries that retirees could blow their hard earned savings on luxury items by arguing it was people's "choice" whether to buy Lamborghini sports cars or not.

The news comes after Fitch Ratings said it is unlikely that insurers will be hit by a credit rating downgrade after the pensions bombshell.

But, like L&G, the firm did warn that if the Chancellor's radical proposals are implemented, they would "significantly" reduce the UK's annuity market.