Income drawdown withdrawals have close to tripled in the last five years, new figures obtained from the Financial Conduct Authority (FCA) have shown.
Data obtained by advice firm Salisbury House Wealth through a freedom of information request from the regulator showed the amount pensioners withdrew from their pensions increased 14 per cent in the last year alone, from £13.5bn in 2015/16 to £15.3bn.
Over the past five years the amount withdrawn had increased 173 per cent, up from £5.6bn in 2012/13, it said.
Data released by HMRC in October had already pointed to drawdown sales having reached their highest level since the freedoms.
HMRC said 42,700 drawdown plans were opened in the second quarter of 2017 compared to 13,800 annuity sales.
Some 435,000 payments were made in the quarter, a record number since the taxman started collecting data and an increase of 34 per cent when compared to the third quarter of 2016.
The value of these payments reached £1.6bn in the three months ending in September, which is a small 3 per cent rise from the same period last year.
Salisbury House Wealth said the rise in withdrawals reflected the number of people taking advantage of the pension freedom rule changes introduced in April 2015.
Falling annuity rates may have further encouraged more people to draw an income from their pension in order to invest in higher yielding assets, it said.
Annuity rates suffered a blow after the Brexit vote in June 2016. By July of that year, the month immediately after the vote, the rates had already fallen on average 3.6 per cent, leaving a 65-year-old buying an annuity worse off at that time than a 60-year-old buying one six months before.
By mid-September the rates were down 27 per cent on the 12 months earlier, analysis from investment firm Hargreaves Lansdown showed.
But by November this year the annuity market had seen a 19 per cent upswing in rates offered to retirees.
Salisbury House said although some people have used money from their pension pot for shorter-term expenditures, overall the reforms have been a great innovation for savers.
Tim Holmes, managing director of Salisbury House, said: “New freedoms have given savers a great opportunity to boost the value of their funds well before they reach retirement.
“Allowing savers to access their pension funds is good for the economy as people spend their funds which generates tax revenue.”
But he warned: “People need to be aware that if they spend it all, they could be caught by the government’s deprivation rules.”
Deprivation rules apply when an individual is deemed to have ‘deliberately deprived’ themselves of money from their pension pot, which can affect their benefit entitlements.
There are also signs savers are withdrawing too much, underestimating the amount of money they need in retirement.
A survey by Sipp provider AJ Bell found 44 per cent of people were withdrawing more than 10 per cent of their pension savings each year, with younger people even less cautious than older ones.