Annuity sales fell by 16 per cent in six months, while demand for drawdown continued to grow, the Financial Conduct Authority has reported.

According to the FCA’s six monthly retirement income market data bulletin, annuity sales fell by 16 per cent during October 2016 to March 2017, while new drawdown arrangement rose by four per cent.

The period saw 33,561 annuity sales in comparison to 83,687 new drawdown plans, with demand for annuities the greatest in the 65-74 age group.

Full encashments were up 18 per cent, with the vast majority of full cash withdrawals among those with small, sub-£30,000 pension pots. A total of 150,806 people cashed their whole pension in one go, the FCA found.

In comparison to the same period the previous year, the total number of pots accessed for the first time grew by nine per cent.

Hargreaves Lansdown head of policy Tom McPhail commented: “Demand for drawdown is now outstripping annuities by almost three to one; it is clear investors have limited appetite for guaranteed incomes at today’s relatively low interest rates. The worry is that for many people, at least some guaranteed income is extremely important, particularly at older ages. If this trend continues much further we may not have an annuity market at all and that won’t be good for investors.”

AJ Bell senior analyst Tom Selby added: “We are now getting a clearer picture of how savers are using the pension freedoms. Annuity sales have continued to slump in an environment of persistently low interest rates, while drawdown has soared as more people take advantage of the flexibility on offer.

“While some have flagged concerns about a lack of switching in drawdown, we need to bear in mind that investors are able to change provider at any time whereas buying an annuity is a one-and-done decision.

“The evidence to date points to people broadly using the freedoms sensibly, although the data does not include other income sources people have in addition to their pension savings. Without this information it is difficult to truly judge the success or otherwise of the reforms to date.”

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