Annuity sales have seen their first quarter on quarter increase for the first time in 3 years, data published by the Association of British Insurers (ABI) shows.

22,380 income products, worth £1.17 billion were sold in the third quarter of this year, compared to 18,200, worth £990m in the previous quarter.

£4.7 billion in cash lump sums payments have been withdrawn under the new pension freedom scheme since April.

The ABI figures show that smaller pots are being taken as cash, while larger pots are being used to access retirement income. £5 billion has been invested towards income drawdown products and annuities as more people are taking sensible approaches when making decisions on their pensions.

The latest figures shows for pay outs:

• £2.5 billion paid out in cash lump sum payments, with an average payment of £15,000
• £2.2 billion paid out via 606,000 income products, with an average payment of 3,600.

For invested funds:

• £2.85 billion invested in 43,800 income products, with an average fund of £65,000
• £2.17 billion invested in 40,000 annuities, with an average fund of £53,300.

ABI Chairman Paul Evans, said:

“As expected, customers are taking smaller pots as cash and using larger pots to secure an income – about 40% with an annuity and 60% with a flexible income drawdown product.  Around half are now switching away from the company they saved with to secure the best deal for their retirement income.

“Overall, customers appear to be behaving rationally, and I think we can all be proud of the speed with which we responded to help the government’s reforms succeed.”