Up to five million people already receiving an income from a personal pension will be allowed to cash in their annuity from next year.

It means pensioners will not be excluded from the chancellor's radical new regime unveiled a year ago, which from next month will allow over-55s who are outside final salary schemes to cash in their pension pots.

But experts are already warning that a secondary market for annuities would be "a buyers' market" and could pose significant risks to pensioners selling into it.

Jon Gwinnett, at Nucleus in Edinburgh, said: "We have very real concerns about how any secondary market would be regulated, and also over whether the re-sale or surrender value of annuity contracts will offer good value for consumers. Consumers need to have the correct advice available to them."

The Treasury has revealed that it expects a £500m windfall from the extra tax that would be payable from people opting for a lump sum. But it has also warned that the 650,000 people on means-tested benefits, some 13 per cent of annuitants, may be excluded from the opportunity.

Steven Cameron, regulatory strategy director at Aegon UK in Edinburgh,said: "There's no doubt there are some people who have bought annuities in the past who rightly or wrongly feel they missed out on more flexible options. Proposals to allow them to sell their future annuity instalments to a third party in return for a lump sum are likely to have an appeal. But it won't be right for all - and for many, could be a very bad decision so it will need to be carefully designed to offer consumer support and protection."

The industry has welcomed the government's consultation on the details and the 12-month delay.

Andrew Tully, pensions technical director at MGM Advantage said: "The issues are complex but I can't see how exchanging an income for cash upfront at a significant discount would make sense. From our calculations, you could lose 30per cent or more of your potential income because of costs and upfront tax. It would seem crucial that people are compelled to take advice before making this decision."

Malcolm Kerr, senior adviser to EY, said: "Freedom and flexibility to manage your money in retirement should be encouraged, but there is concern we could end up with more people relying on their state pension if personal financial decisions go sour. Given the efforts behind auto-enrolment, which was designed to further safeguard people in retirement, this would be ironic."

Mr Cameron added: "Anyone turning future annuity income into cash is giving up a guaranteed flow of income - for their and possibly a partner's future life. Swapping this for a lump sum, calculated based on a range of factors, is undoubtedly a complex and risky decision."

However Chris Noon, partner at actuaries Hymans Robertson in Glasgow, said: "The bull market in bonds means that annuitants who bought five years back could get back as much as they put in, despite having drawn an income for those five years."

The chancellor has also reduced the lifetime allowance for pension contributions to £1m, from £1.25m this year and £1.8m three years ago, which has dismayed the industry.

Brian Davidson at Alliance Trust Savings in Dundee said: "We understand the need to balance the books but the almost bi-annual reduction of pension allowances... simply brings more confusion and complexity to the market. We would like the government to set a challenge to the industry to devise a model of annual and lifetime allowances that is sustainable in the long term and allows individuals and advisers to make long term plans for retirement savings."

Stephen Ford, investment director at Brewin Dolphin, said: "After taking 25per cent tax free cash, this (£1m) pot could buy an index-linked joint life pension of £26,000 - not a very high income for life."

Mr Noon said: "The chancellor says that it will affect fewer than 4per cent of those approaching retirement. We think 15 to 20per cent could be impacted by this ultimately.

"This is a policy that could act as a disincentive to doctors, dentists and secondary school head teachers saving into pensions."