Pensions have never been easy to understand, even when the rules governing them were constant. But the whole area of retirement planning has become even more confusing as changing economic and demographic circumstances have led to growing pressure for a rethink of the way the industry is structured.

The Minister for Finance, Mr McCreevy, took the first step towards reforming existing pension arrangements with the publication of the Finance Bill. In it, he outlined new options for the self-employed, increasing their tax-free pension contribution limits subject to a new cap of £200,000 per annum; extending the date by which an individual must exercise the option to take a pension to 75 from 70; and allowing them other options besides the compulsory purchase of an annuity.

His proposals, the most radical reform of pensions for years, met with a mixed reaction. Many in the industry and the State's largest union, SIPTU, expressed concern that some pensioners could end up worse off than before.

Without a guaranteed lifetime income, they could run out of money if they lived to a very ripe old age, they could invest their funds badly and end up with less than they started out with, they might receive poor advice or become vulnerable to family or other social pressures to part with the cash that should go into providing for their retirement.

But others, including many self-employed people, have given the new proposals a warm welcome. "As an independent financial adviser, I think it's magic for my clients. It opens up all sorts of avenues," said Mr Owen Morton of Moneywise Financial Planning although he cautioned that the proposals were as yet aspirational and not past the post by any means.

It is the issue of annuities, in particular, that has divided opinion and provoked controversy. Falling interest rates have led to widespread dissatisfaction with a situation where those with pensions were forced to purchase an annuity from a life assurance company at the point of retirement.

Designed to guarantee an income for life, annuities protected pensioners against the risk that their funds ran out before they died and against investment risk. An individual who purchased an annuity at 60 was guaranteed an income at 90, even if the sum he had originally paid over was gone by the time he was 80.

On the downside, pensioners were forced to hand over their cash at a single point in time, taking what one commentator has described as "one big bet on interest rates when you come to retire".

In addition to the lack of flexibility, if the pensioner is unlucky enough to die early, the insurance company keeps the money they paid.

But what has most turned public opinion against annuities in recent years is their rising cost.

The rate of return on an annuity is based on the yield on the long-dated government bond which has fallen from more than 15 per cent in 1975 to less than 4.5 per cent at present, with obvious implications for anyone whose income is dependent on such an investment. As the rate of return has fallen, pensioners have had to pay more to secure the same level of income.

According to Mr Joe Byrne, group actuary and deputy managing director with Coyle Hamilton, a man retiring with £100,000 in January 1999 could effectively buy a pension just 73 per cent of that he could have purchased in 1995. This has led to a widespread view that change is required in this area. The challenge is to offer more choice and flexibility while providing pensioners with some protection. Too much protection and the state could be accused of "nannying" people, of trying to protect them from themselves. Too little and the vulnerable could be left exposed.

Although the Government's new proposals provide for an approved minimum retirement fund (AMRF) of £50,000, many believe it is not enough. They fear that Mr McCreevy has moved too quickly to deregulate the industry and more extensive consultation would have been welcome.

"The need for change is very real but the pitfalls are very great," says Mr Tom Collins, director and actuary with pension providers Lifetime Assurance. "While acknowledging the reality and the urgency of the problems which have to be faced, any proposals for change should be treated with caution and only implemented after due challenge and consultation."

Such concerns are not confined only to those industry players who stand to lose business as a result of the reforms. There appears to be a consensus that while the reforms are very good for those of means, used to managing their money and to seeking sound investment advice, they could pose problems for the less well off who are more dependent on their pension.

"For the proprietary director with a lot of independent wealth, it may be a good idea but for the person solely dependent on it, you could have problems," says Mr Fred Kerr, head of pension planning with Ernst & Young.

Mr Kerr says he would have preferred it had the Government brought out a Green Paper on the issue and circulated it to all relevant parties before pressing ahead with reform.

Meanwhile, those who have to make decisions about retirement are faced with difficult choices. Most financial advisers urge people, especially the self-employed, to hold off on committing themselves to any one option, including the purchase of annuities, until the Finance Bill proposals become clearer.

However, it remains uncertain when, or even if, the more flexible regime will be extended to occupational pension schemes such as defined contribution schemes.

Aside from the low interest rate environment, the other factor forcing change in the industry is the expected increase in the proportion of pensioners to working people in the population in the years ahead.

This means that greater emphasis will have to be placed on private, as opposed to State provision, of pensions. The Pensions Board has recommended an ultimate goal of some 70 per cent of the total workforce, over age 30, having supplementary pension provision.

In addition to planning for an ageing population, private pensions will have to take account of more flexible working practices, longer life expectancy and an increasing trend towards early retirement.

One of the more radical proposals put forward by the Pensions Board was the introduction of Personal Retirement Savings Accounts (PRSA) which would meet the needs of today's more flexible labour market without undermining existing good provision, especially in defined benefit schemes. New distributors would be allowed to enter the market, tapping previously untouched customer sectors, while such products would also have a greater degree of simplicity and cost effectiveness than previous pension arrangements.

However, it remains unclear when PRSAs, currently the subject of an inter-departmental working group, will be introduced. "PRSAs are being considered in the context of a Pensions Bill which the Minister Dermot Ahern hopes to publish later this year," said a spokeswoman for the Department of Social, Community and Family Affairs.

The PRSA would be revolutionary by Irish standards because it can be owned by the individual, regardless of their employment status and it can be carried from job to job.

As a result, PRSAs would make personal pensions accessible to the lower paid, to part-time workers, people on career breaks including those on maternity leave, workers with few years' service, workers whose employer does not provide any occupational pension and even the unemployed. The proposals envisaged that the PRSA could be opened with a bank, building society, post office, life assurance company, credit union, supermarket or affinity group.

Already, a number of pension providers are offering what one financial adviser described as "PRSAs without the bells and whistles", pension products that could be easily adapted to become PRSAs. But legislation will be needed before the ordinary punter can plan his retirement and pick up the groceries on his weekly trip to the supermarket.