He wants that change to drive innovation in the 12 billion pound ($21 billion) per year British annuity market.
To accompany the reforms, he also wants to make free independent financial guidance available.
On Monday, the government confirmed its intention to go ahead with such plans, seen as the biggest reform of pensions in a generation, and added details to its proposals following a consultation with industry, employers and consumer groups.
"It's right to support hard working people that have taken the long-term decision to save for their future and I'm pleased that the responses we had to our proposals on making pensions more flexible have been overwhelmingly positive," Osborne said.
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The finance ministry estimated the changes could affect 18 million people, but said it expected the impact on financial markets would be modest.
"The government believes that the overall impact ... is likely to be limited," it said. "It is expected that there will still be a strong continuing demand for high-quality fixed-income assets, including government and corporate bonds."
Osborne rejected the idea that the changes would allow pensioners to fritter away their savings early in their retirement and later suffer an impoverished old age.
The reform plans have raised questions over how insurers will be affected by a dip in demand for annuities if there is no longer a requirement for retirees to buy them.
When Osborne first announced the shake-up earlier this year, it hit the share value of firms like Legal and General, Aviva and Standard Life who run annuities businesses.
Those shares have since recovered slightly, but remain below their pre-announcement levels.