Sales of annuities plummeted by over a third between the first six months of the year, according to the Association of British Insurers.
Figures taken from ABI members show that between Q1 and Q2 2014, sales dropped by 37.5%, down to an annualised rate of under 200,000.
The ABI's latest retirement income figures also revealed that there had been an increase in both the mean (£38,600) and median (£25,600) pension pot size used to buy an annuity.
The ABI attributed this to people with small pots who were taking advantage of the recent relaxation in retirement rules making, which made it easier for them to turn their pots into cash. Before the pensions liberation was announced earlier this year, savers could only take their pot as cash if they had less than £2,000 put aside, the limit has now increased to £10,000.
The ABI data also showed that 29% of all annuities in Q2 were enhanced, up four percentage points from the same quarter last year, lead by contracts been unwritten using medical and lifestyle characteristics.
Yvonne Braun, head of savings, retirement and social care at the ABI, said that although the 2014 pension reforms radically overhauled the industry, it was too early to judge how customer behaviour will continue to evolve.
She said: '[The data suggested that] customers with smaller pots have immediately started to use the new freedoms to take their cash lump sum, which is something the industry has campaigned for. The data also shows where customers with small pots choose to annuitise they are increasingly taking enhanced annuities.
'Although it is too early to determine how customer behaviour will continue to evolve between now and when the Budget reforms come fully into effect in April 2015, there are still a significant number of savers who will want the regular income provided by an annuity. We would expect that many will choose to annuitise later as a result of the new measures.'
Tom McPhail head of pensions research at Hargreaves Lansdown added: 'It is not surprising to see annuity sales plummet in the wake of the budget announcement. We know from our own research that many investors are treading water to see what their options are before committing to a retirement income strategy.
'Interestingly we also know that over 90% of investors do value a guaranteed income in retirement, so perhaps many of them will still end up buying an annuity. We are becoming increasingly concerned about the volume of short-term retirement deferrals which is building up and the potential tidal wave of activity which could ensue around April next year.
'Investors could end up facing administration delays if some pension providers struggle to cope with demand. Anyone who is interested to use the new drawdown rules might want to consider acting sooner rather than later as they can use drawdown now and still keep their options open for next year.'