The regulator released its review showing that accessing pension savings early has become 'the new norm'.
It was the first major comprehensive study into how the retirement income market is changing since the pension freedoms.
Tim Gosling, policy lead for DC at the Pensions and Lifetime Savings Association, said the report made “for disturbing reading”.
He said: “Without timely action now, those retiring in the near future who are dependent on defined contribution pots and who have no access to advice will not receive the retirement they hope for.”
Andrew Tully, pensions technical director, Retirement Advantage, said: “Two years on since the seismic changes to the pensions market were introduced, a worrying new norm is beginning to emerge.
“Far from valuing the income the pension was designed to generate, it would seem people have been taking full advantage of grabbing the cash early.
“This is backed up by the government’s own stats on the additional tax take, which by their own admission is way higher than they expected.
“Many experts thought having to pay income tax on withdrawals would prove to be a natural brake but this clearly isn’t the case. Moving money from a tax-efficient pensions environment to place into other savings or investments is frankly bonkers.”
John Perks, managing director of Life and Pensions at LV=, said: "LV= has repeatedly warned that without action to address this issue we will face a ‘mis-buying’ crisis of consumers making important financial choices without adequate support.
“We therefore welcome the regulator’s proposals to look closer at consumers who access drawdown without taking advice, as well as improving access to impartial guidance. The new financial guidance body could play a key role in directing people to advice and we believe this should be a specific part of its remit.”
David Newman, head of pensions at Close Brothers Asset Management, said: “The figures show that the retirement crisis still looms large. It is concerning that over half of those pensions pots accessed have been fully withdrawn, and while the withdrawn pots are mostly below £30,000, there is a fear that consumers are losing out on tax benefits by doing so; when entering retirement, every little helps.
“The fact that consumers are also increasingly accessing drawdown without taking advice should also be a worry, and could mean that many are running the risk of exhausting their savings too early by not having the right investment or drawdown strategy.”