Experts have called the rate "unsustainable."

There is also concern about a drop in the proportion of people taking regulated advice before accessing their pension for the first time.

Quilter head of retirement policy Jon Greer has stressed the dangers of such a high pension withdrawal rate after FCA pensions data for 2020/21, published this week, revealed that 43% of regular pension withdrawals were at an annual rate of 8% of more.

Mr Greer said the FCA’s Retirement Income Market Data Report for 2020/21 highlighted areas of serious concern.

Many pension savers are withdrawing from their pension pot at what Mr Greer called an “unsustainable” level. The 8% withdrawal rate is double the traditional withdrawal rate of 4% quoted by many industry experts.

He said: “Most worrying is the number of people taking regular withdrawals at an unsustainable rate. 43% of regular withdrawals were withdrawn at an annual rate of 8% or more of the pot value, up from 42% in 2019/20. 

“This will quickly drain a pension pot and will not see it replenished fast enough, even in buoyant markets. As we have seen over the last two years, markets can crash at an instant, and withdrawing at such a rate will result in difficult choices having to be made in retirement. 

“Pension Freedoms have been a great success for people being able to take flexible approaches with their money, but more access to advice and guidance is needed to help people understand longevity and the risk of running out of money in retirement.”

He said the data also showed on the positive side that the number of pensions being fully cashed out at the first time of asking is decreasing although this still makes up the vast majority of ways pension pots are being accessed following the Pension Freedoms which were introduced in 2015. He believes the fall could show that pension savers might be “pausing for breath” as a result of the pandemic.

He wants to see a stronger nudge to pension guidance but also more effort to make consumers aware of the need to do proper research before taking pension decisions.

He said: “Far too many people take their pension pot and stick it in cash. With inflation spiking and prices likely to be reset at a higher level, those sat in cash will quickly see their money eaten away. This invisible threat could result in the difference between a comfortable and a difficult retirement. Guidance, therefore, is a good first step but every effort needs to be made to get people to seek financial advice on what to do with their hard earned retirement savings.”

Andrew Tully, technical director at Canada Life, said: “Many people who have opted to make regular withdrawals from their pensions do so at a rate of 8% or more and it is the most popular withdrawal rate for all pot sizes up to £250,000. While for some, this may be a deliberate strategy to deplete pots in a specific time-horizon if they have other assets to fall back on. For others, this may mean they run out of money in the years to come.

“The data shows a decline in activity over the last year as people have clearly been paralysed by the pandemic, with many opting to wait for a calmer year before making any long-term decisions around their retirement income. We can see evidence of this in the number of pension plans which have been accessed dropping by 12% and the number of annuities purchased falling by 13%.

“Increased regulatory scrutiny on DB to DC transfers is clearly having the desired effect as activity is down by 25%. Advisers have been stepping away from this market for a number of reasons but we know consumer demand is still there. While annuity sales are still down we can see an increasing number people are choosing to purchase one later in life. Perhaps following a hybrid approach of starting with drawdown then gradually de-risking to an annuity. This makes sense as annuity rates improve as we age due to life expectancy and declining health.”

Kate Smith, head of pensions at Aegon, said: “The data shows a 3% fall in 2020/21 in the proportion of people who have accessed their pension for the first time with regulated financial advice. Retirement decisions are hugely important and there is a risk that without professional advice people could make decisions that may not be in their best long-term interest, particularly during these times of huge uncertainty caused by the pandemic.”