Sales of individual annuities in the UK fell by almost half from £12.4bn in 2013 to £7bn in 2014, according to a report.
Data company Timetric said the sharp decline of annuity sales was driven by new pension freedoms first introduced by the government in March 2014.
"The 2014 budget changes have given retirees a wider range of options on how to access their defined contribution pension pots, paving the way for a first wave of innovative retirement income products," said the firm.
It added that in the run-up to April 2015, when the changes were implemented, several pension providers introduced new products with the aim to deliver a blend of security and flexibility to their customers.
The firm said people with smaller pensions were expected to take advantage of the reforms and cash in their entire pots, while those with larger pots were more likely to withdraw the 25% tax-free lump sum upfront and use the remainder of the fund to provide them with an income.
Timetric said providers and advisers were also expected to encourage savers to "mix and match" their options.
Laura Balkarova, economist at Timetric, said annuity sales would continue to decline in 2015 and added that uncertainty remained over the future of annuity sales.
"Uncertainty remains over the future level of sales as it is yet to be seen how investors will behave in the light of the new freedoms," she said.
"Annuities are expected to remain an option for savers looking for certainty of regular income for life. Third-way products, such as unit-linked guarantees, fixed-term and investment-linked annuities may become more relevant to savers looking for alternatives to conventional annuities."