Two years after the introduction of the pension freedoms, less people are withdrawing their savings as one lump sum, the Association of British Insurers has found.

According to the ABI's latest stats for 2016, the majority of savers with larger pots are using their pension freedoms to buy either a guaranteed income via an annuity or a flexible income with a drawdown product.

The ABI noted the average total sum that is withdrawn the first time a pension pot is accessed has fallen to £14,000 in comparison to more than £15,000 the first year after the reforms.

Nonetheless, activity continued to be high be with around 170,000 pension pots being accessed for the first time during the second and third quarters of 2016 and 82,100 new products sold. This is a slight reduction on 87,500 new products being sold in the same quarters of the previous year.

Furthermore, during Q2 and Q3 2016, for funds being invested in new products, annuities performed well against drawdown products in terms of the number of new products being purchased. The value of the average fund being invested grew from £56,500 to £58,100.

In addition, the average fund size being invested in new drawdown products also increased, peaking at £88,900 in Q2 2016 and £76,000 in Q3 2016. These figures were significantly higher the average fund size invested being just over £67,500 in the first year following the reforms.

Customers switching provider to buy either an annuity or a drawdown product grew to 50 per cent for Q3 2016.

Further direct comparisons cannot be made as a result of a change to the FCA data collection, which ABI's own collection follows.

ABI head of retirement policy Rob Yuille said: “It was inevitable that fewer people would choose a guaranteed income for life if they had the option of a lump sum, but after an initial dash for cash the market is settling. While the numbers of those taking their pensions as a lump sum remains high, the average pot taken is relatively small with the majority of funds going into either a guaranteed income for life or a flexible income product.

“Flexibility is more meaningful to those who have been able to save more. Auto-enrolment has worked well to get millions more people saving for a pension. The priority now has to be increasing savings levels, and ensuring self-employed and part-time workers don’t get left behind.”

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