People taking their retirement income through ‘drawdown’ products has jumped 173% over the past five years, from £5.6bn in 2012/13 to £15.3bn in 2016/17, according to Financial Conduct Authority (FCA) data revealed to The Financial Times. In contrast to an annuity, pension drawdown allows investors to take income from their retirement savings while their pot remains invested in stock or bond markets. An annuity offers a guaranteed income for life, but in most cases the pot is lost when it is bought.

In his time as Chancellor, George Osborne removed the compulsion to buy an annuity at 75. Today, anyone aged over 55 can take their whole pot in cash, take a regular income via a drawdown product, buy an annuity, or do a combination of all three.

There have been concerns about the number of people taking drawdown without advice. With drawdown, as the money remains invested, there is always the chance of capital loss, potentially leaving savers fully dependent on the state pension in retirement. In April this year, the FCA announced it was conducting a thematic review of non-advised drawdown.

The results of a wider review, revealed in June this year found that accessing pension pots early has become ‘the new norm’. Almost three quarters (72%) of pots that have been accessed are by consumers under 65 with most choosing to take lump sums rather than a regular income. It also found twice as many pots are moving into drawdown than annuities.

This new data also shows that individuals with final-salary pensions are also giving up guaranteed income to make use of pension freedoms. The amount savers withdrew from their pots via income drawdown increased 14% in the past year. This has been controversial, particularly in cases such as the British Steel pension scheme, where retirees have been seduced by the large transfer values on offer, without necessarily considering how they will replace the income lost.

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