2006 was probably best characterised by government U-turns. Having just digested a last-minute change of heart by the Treasury at the tail-end of 2005 which meant residential property and fine wine would not be allowable investments in self-invested personal pensions, investors had to digest further changes this year.

Two came in December’s pre-Budget report. One effectively killed off the market in so-called “family” Sipps, where pensions were set up so that wealth could be passed between the generations. Another saw the removal of an increasingly attractive tax perk which meant that life insurance could be bought within a pensions wrapper, effectively cutting the cost of this cover.

But there were other developments too. New entrants into savings have shaken up the market with market-beating savings accounts. Growing numbers of fund managers have been making use of new rules, enabling them to bring retail hedge funds to the high street. And in the mortgage market, lenders have become even more generous over how much they are willing to lend buyers. Below, FT Money reporters summarise the main developments

One of the most generous new freedoms won by pension investors in 2006 proved very shortlived. In April, after many years of campaigning by pension investors and their advisers, new rules came into force which meant that pension investors no longer had to buy an annuity with their pension fund at age 75. This meant that several hundred people who turned 75 since the new rules came into effect took advantage of the new freedoms.

Under the old rules, investors had to purchase an annuity with their pension fund by age 75. In return for a lump sum, an annuity provides a secure income for the remainder of the investor’s life.

But falling rates have made annuities less and less popular. In addition, pension investors had become disgruntled that they were unable to pass on their pension assets to heirs on death.

The introduction of Alternatively Secured Pensions changed all that. Under an ASP, investors can draw an income directly from their fund. On death, these pension assets can be passed to spouses, financial dependants and civil partners free of inheritance tax. Thereafter these assets form part of an individual’s estate for inheritance tax purposes.

The growing interest in these pensions unnerved the Treasury. In December’s Pre-Budget Report it announced tax charges that would effectively kill demand for so-called “family” Sipps, pensions set up to pass wealth between the generations.

Under the revised regime, on death, a tax charge of “up to 70 per cent” will apply in addition to any inheritance tax. In some cases, this will mean that 82 per cent of pension assets will be wiped out on death.

Financial advisers are not predicting the total death of ASPs. Investors whose primary aim is to continue managing their pension assets well into retirement may still be attracted to these pension vehicles. But if your aim is to pass on wealth to heirs, you might want to think again. Because of the onerous tax treatment on death of ASPs, individuals wishing to pass on their pension wealth may be better off buying an annuity to suck out as much income as possible. Having your pension income taxed at a maximum rate of 40 per cent may be more palatable than having the capital taxed at as much as 82 per cent on death.

What has been the most fashionable trend to influence investments this year? Unquestionably it is the arrival of Ucits III legislation, European rules governing investment funds. These have introduced a number of changes, the most significant of which are freedoms enabling fund managers to use sophisticated instruments such as derivatives in their portfolios.

2006 saw thousands of investors pour money into absolute return funds, which take advantage of Ucits III rules, lured by the promise of profits even in falling markets. Just a few weeks ago, M&G launched the Optimal fund, managed by Richard Woolnough, and in November, Henderson Global Investors said it would start the Pan-European Alpha Plus fund.

The adoption of Ucits III rules – which permit managers to benefit from falling markets by “shorting” shares – enables funds such as unit trusts or open-ended investment companies (Oeics) to become more like hedge funds. So far the performance of these funds has not met expectations and many advisers urged clients to regard them with caution. “I can see the huge potential for them, but I’d be wary. We haven’t seen whether they can cope in bad markets and I don’t think some fund managers are necessarily up to using derivatives at this stage,” warns Mark Dampier, an adviser with Hargreaves Lansdown, the broker.

At a glance, the UK appears to be a nation of debtors, not savers. But this year those who put money into savings accounts reaped the benefits of two quarter-point interest rate rises.

Interest rates on the top savings accounts range from 4.7 to 5.5 per cent so if you are getting less than this it might be time to switch. This year Landsbanki, the Icelandic bank, stirred up the market when it launched its Icesave Savings Account. Advisers like it because it pays a very attractive gross rate of 5.45 per cent on balances of £250, and the rate is guaranteed to exceed the Bank of England’s base rate by at least 0.25 of a percentage point until October 1 2009 and not fall below the base rate until October 1 2011.

It is important to keep tabs on how the rate and terms of your savings account compare with those of other banks. Come 2009, the rates offered by Landsbanki, which is trying to make inroads into the competitive UK retail banking market, could fail to keep up with competitors. As a case study, consider ING: five years ago the Dutch bank offered the best savings rates in the UK, but its rate of 4.75 per cent now falls well outside the top five.

One savings product which should be considered as an alternative to savings accounts are National Savings Index-Linked Certificates. As the retail price index (RPI) now stands at 3.9 per cent, index-linked certificates are a good deal for taxpayers. The three-year 14th issue pays RPI plus a rate of 1.15 per cent tax-free for three years or the equivalent of 5.05 per cent tax-free.

“They are currently a great deal, although savers need to bear in mind that RPI could obviously fall in future and reduce returns,” says Modray of Bestinvest.

A plethora of new and improved mortgage products hit the market this year as soaring house prices put properties increasingly out of the reach of first-time buyers.

Lending criteria on traditional mortgages were relaxed to give more generous loan-to-values and higher income multiples, while creative options such as group mortgages and share-to-buy loans were launched.

One of the biggest stories of the year was Abbey stretching its standard maximum mortgage offer to five times an individual or joint buyers’ salary. Most lenders had been moving away from traditional income multiple levels of 3 to 3.5 times but Abbey’s move broke the mould. The lender justified these borrowing levels by saying that only applicants with strong credit records and good salaries would qualify.

There was a more general trend of banks and building societies moving towards lending according to affordable repayments rather than strict income multiples. Lenders including Yorkshire Building Society, Scottish Widows and Cheltenham & Gloucester also said they would lend at five times salary levels. Some lenders now offer as much as seven times income for high-earning borrowers.

Many lenders also started to offer higher loan-to-values for borrowers. HBOS became the first mainstream lender to stretch the amount it will lend to 125 per cent of the value of the property. The new mortgage works on the same lines as Northern Rock’s “Together” offer, which allows applicants to take a mortgage on 95 per cent of the property’s value and borrow a further 30 per cent – capped at £30,000 – as an unsecured loan. The extra money is aimed to help buyers pay for mortgage arrangement fees, legal costs and stamp duty as well as refurbish and kit out their new home.

Other quirkier mortgage launches included a “buy-to-share” option from Stroud & Swindon, which enables the buyers to inflate their own income by up to £6,375 if they have two spare rooms to rent out.

Demand for group mortgages, which allow up to four individuals to purchase a property jointly and share the repayments, grew rapidly, with many buyers resorting to buying with complete strangers.

Similarly lenders said guarantor mortgages – where a parent or guardian agrees to cover the repayments if the homeowner fails to keep up repayments – had become more popular.

If you are not intimidated by the thought of paying your mortgage off in retirement then you have a much greater choice of longer-term mortgages. Around 30 per cent of lenders – including HSBC, Alliance & Leicester and Britannia – now offer mortgages with lending terms of up to 40 years, with Tesco extending it to 52 years.

The more generous lending did not stop with first-time buyers; lenders also relaxed criteria for buy-to-let investors.

Portman Building Society and Platform, the intermediary arm of Britannia, increased their maximum loans-to-value to 90 per cent on buy-to-let properties. Lenders also took steps to reduce their rental cover requirements. The typical rental requirement has fallen from 130 per cent of interest costs to around 120-125 per cent, and some lenders will accept rental cover as low as 100 per cent, meaning gross rents need only match total interest repayments.

In terms of cost, borrowers with variable rate deals were hit by two quarter-point interest rate rises during the second half of the year. Many lenders also withdrew their best fixed-rate deals. There were, however, a number of mortgages launched with high upfront arrangement fees in exchange for more competitive interest rates.

Buying life insurance rarely excites the average consumer. But add in the prospect of tax reliefs, and you will generate some interest. In April, as part of the “A-day” pension reforms, stand-alone life insurance could be bought under a pensions wrapper for the first time. This meant higher rate taxpayers could cut up to 40 per cent off the cost of their premiums. Brokers reported strong interest. Since April, an estimated 100,000 pension term assurance policies were sold.

But in December’s Pre- Budget Report, the chancellor announced a crackdown. From this date, the government said pension term assurance policies sold would no longer attract tax relief. For the pensions and insurance industries this was seen as yet another surprising – and annoying – U-turn. In particular, the industry expressed anger that pensions term assurance policies that were still being processed by insurance companies would no longer attract tax relief.

On this point, the government has conceded. Earlier this month it confirmed that where application forms were fully completed on or before December 6 and where receipt was recorded by the insurance company by midnight on December 13, applications can still be processed and get full income tax relief.