The trend has strengthened since the new pension freedoms came into force 100 days ago, according to the Association of British Insurers (ABI).
Of those buying a retirement income, 53% chose an income drawdown policy, while 46% chose an annuity.
Three years ago, annuities accounted for 90% of policies purchased.
In the two months after 6 April, 65,000 people exercised their new right to withdraw cash - taking out more than £1bn, the ABI said.
Previous figures from the Treasury show that 85,000 savers withdrew £1.3bn in cash up till 28 June.
The data suggests that people with smaller pension pots are cashing them out, while those with larger pots are using them to buy a regular income.
The average cash pot taken was worth £15,500.
However, the average annuity purchase was for £55,750, while the average drawdown policy was for £69,900.
Those buying an annuity are locked into a fixed income, while income drawdown policies are more flexible, with the capital remaining invested.
The difference is explained more fully here.
However, not all pensions providers are allowing their customers to withdraw partial cash sums, as the government intended.
But the ABI said good progress had been made.
"Tens of thousands of people are successfully accessing the pension freedoms as intended, and on the whole, the industry has risen to the challenge of giving customers what they want," said Dr Yvonne Braun, the ABI's director for long-term savings policy.
People over the age of 55 are turning away from buying annuities, in favour of income drawdown policies, industry figures show.