A Conservative Government would adopt the proposals of former Labour social services spokeswoman Dr Oonagh McDonald as part of sweeping reforms of the annuity rules.
The McDonald report, written by the former regulator and prominent Labour MP last year, says people should only be obliged to purchase an annuity that secures a sufficient level of income so they do not have to fall back on state benefits in the future. This would free up the remainder of their pension pot to be invested elsewhere.
The Liberal Democrats say they would also scrap the obligation on people to buy an annuity as long as there is no chance they would need benefits at a later date but say that they are not accepting Mc Donald's proposals.
The Tory reforms would go further than LibDems proposals as people would need a guaranteed income keeping them off state benefits, but not necessarily an annuity.
They say the City is cap able of designing financial products that will adequately cover people.
Tory Treasury spokesman Richard Ottaway says: “It will be the Conservatives after the next election that will change the obligation to buy an annuity by adopting the Oonagh McDonald proposals.”
Conservative pensions spokeswoman Jacquie Lait agreed with Ottaway. She says: “Basically, there is not much difference between our proposals and McDonald's. In a sense, ours go even further as we are not forcing people to buy an annuity at all.”
Liberal Democrat social security spokesman Steve Webb says: “Provided there are safeguards to ensure that those who draw down their pension funds do not end up reliant on means-tested benefits, I can see no reason for a compulsory requirement to purchase an annuity, and would support measures to relax existing restrictions.”