George Osborne's Budget - which included a pledge that in future no-one would be forced to buy an annuity - sent shock waves through the sector.
Within hours some of the UK's largest firms had been hit, including Legal & General, which saw shares down 13%, and Aviva, down 8%.
Last night one industry leader denounced the changes as dangerous, short sighted, and ill-conceived.
There were also warnings some pensioners would burn through their pension savings and end up costing the state much more in their old age.
But others said the reforms would help savers and offer new opportunities to the industry.
Under the changes, it will become easier to draw down pensions and cash in smaller pension pots.
Pensioners can still choose to buy an annuity if they wish, but, unlike the current system, no-one will be forced to take that option.
The Chancellor said the reforms were needed as the worth of annuities had fallen in recent years.
Mr Osborne also slammed what he described as the "patronising" idea that pensioners were not capable of planning their financial future.
Treasury sources said planned changes to the state pension - including the introduction of the single-tier system in 2016 - meant that fears that older people would spend their pension pots and be forced to fall back on means-tested help from the Government had become less relevant.
But Nigel Green, the founder and CEO of financial consultants the deVere Group, denounced the proposed changes.
"This move to scrap the restrictions is in direct conflict with the spirit and purpose of pensions, which is to provide the individual with an income throughout their retirement," he said.
He called the moves "depressingly short sighted" and accused the Treasury of hoping to raise additional tax revenue by allowing a greater number of people to receive all their pension funds in a lump sum.
Figures released by Whitehall show the tax take from pensioners will grow because of the changes by almost one billion pounds by 2018/19.
Mr Green added: "Should these people run their savings dry in the early stages of their retirements - as I suspect many will do, - who will fund them?
"This policy of allowing a full drawdown is extremely dangerous and ill-conceived for both individuals, who are considerably more likely to become financially dependent on the State, and the wider economy, which needs the population to be as financially independent as possible to secure long-term stability, growth and competitiveness."
However, he did welcome moves to stop individuals being forced to buy an annuity at retirement.
John Overs, a partner at Berwin Leighton Paisner, specialists in UK pension law, said despite the share-price falls the changes could be good news for the financial services industry.
"Retirees will now be presented with a greater choice of products from the industry, so while companies will earn less from annuities, they will see an uplift from the sale of other products," he said.
Paul Green, director of communications at Saga, which campaigns for a better deal for older people, said that the challenge now was "to make people's savings last a lifetime".
"Those saving for retirement, and the financial services industry, need to step up to the challenge to enable savers to achieve their retirement dreams," he said.
John Fox, director of pensions provider Liberty SIPP said he expected the changes to encourage more people to save for their retirement.
But he added: "It's no coincidence that this move by the Chancellor will give the economy a massive influx of cash prior to the General Election and also put a feel-good factor in many people's step."
He added: "Car dealers and travel agents will be rubbing their hands with glee."
Donald Fleming, a pensions partner at KPMG Scotland, said: "From limited choices, individuals now have greater flexibility to decide how they save for the future."
But, he added: "With more decisions to be made comes more responsibility and greater risk."
Mr Osborne has also pledged to spend £20 million over the next two years developing a new "right to advice" service for those approaching pension age.
Under the changes in the Budget 400,000 people across the UK, and 40,000 in Scotland, will be able to access their savings in a more flexible way.
The shake-up will also cut the amount of guaranteed income someone needs in retirement in order to access "flexible drawdown", where money can be siphoned from a pension pot, from £20,000 a year to £12,000 a year.
Mr Osborne said that his measures were a "radical change" to the way that pensions are organised in the UK.
The Government is also legislating for an overhaul of the pensions taxation system.
The plans for those reforms are expected to be in place by next April.