The Consumer Price Index (CPI) rate of inflation fell sharply to 0.5% in the year to December 2014, from 1% in November 2014, official figures show.
This is the joint lowest CPI rate on record and the lowest since May 2000. The Office for National Statistics said the low inflation was driven by falling food and fuel prices.
Under current rules, savers can take 25% of their pot as a tax-free lump sum and put the remaining 75% in a drawdown account. Any amount withdrawn from the drawdown account is taxed at the individual's marginal rate of income tax.
The cost of doing business has continued to rise in 2014 despite the falling rate of inflation, research from the Forum of Private Business (FPB) has found.
The survey reveals that prices for micro, small and medium-sized businesses have risen 4.7% in 2014.
However, the Consumer Price Index (CPI) rate of inflation has fallen from 2.7% in September 2013 to 1.2% in September 2014.
According to the FPB:
