Retirement index shows how cost of living is outstripping pensioners' income

Article date: 4 December 2006

The latest Norwich Union Retirement Index reveals howpensioners’ disposable incomes are being squeezed ashousehold bills rise at a faster rate than pensions.

The most recent quarterly data reveals that between the first threemonths of 2006 and April to June 2006 average pensioner householdincome rose by just 0.6% while essential expenditure rose by 3.8%– more than six times as fast.

The index tracks how retirement comfort changes over time bymeasuring the income that pensioners have left after payinghousehold bills. It has been compiled by the centre for economicsand business research (cebr), one of the UK’s leadingeconomic consultancies and commentators on UK and global economictrends.

Although pensioners’ incomes have risen – with thepost-tax income of an average pensioner household rising by 31%since 1995, household bills have risen by 58% – leavingpensioners with a declining share of their income to spend onnon-essential and luxury items.

The report shows that between August 2005 and August 2006, thecosts of fuel, gas and electricity rose by 9%, 39% and 27%respectively – costing pensioners an additional £14 a monthin total. Overall, pensioner household bills climbed by 8.6% overthis period – more than three times the rate of inflation asmeasured by the government’s consumer price index (2.4%October 2006).

The biggest annual increases between August 2005 and August 2006for pensioner households were:

  • Gas bills – up £55
  • Electricity bills – up £41
  • Water charges – up £20
  • Central heating repairs, house maintenance, fuel costs –up by nearly £20
  • Council tax and domestic rates - up £27.

Brendan Kearns, product development manager at Norwich UnionPersonal Finance, said: “Norwich Union commissioned thisindex to look at the challenges faced by retired people, and to seehow pensioners’ disposable income is changing. Retirement isoften regarded as a time when pensioners should be enjoying theirlife but rising household bills mean that many on fixed incomes arestruggling.

“Average house prices rose on average by 194% between Q3 1995and Q3 2006 so it makes sense for people to consider how they mightunlock some of the value in their home. That could be achieved bymoving to a smaller home or using an equity releaseplan.”

Dominic Walley, managing economist of cebr, said: “WhenNorwich Union asked us to compile the Retirement Index, we lookedat the data as far back as 1995 and found that 2005 was the worstyear for pensioner comfort. Rises in household bills have affectedeveryone, but pensioners have been hit hardest. And poorerpensioners have it the worst.

“Even though the government has tried to help them insuccessive budgets, they generally do not have large equity-basedsavings and have not benefited as much from the stock marketrecovery over the past three years.”

Summary of Norwich UnionRetirement Index

This table shows how pensioner household incomes andessential spending has changed since 2000. Over the past fiveyears spending on essential bills has increased as a proportionof income. The far right column shows what share of income canbe spent on non-essential items using 2001 as a benchmark.

Pensioner’s annual householdspending

Annual income of pensionerhouseholds

Retirement index

(2001 = 100)


























For Norwich Union press office, contact:
David Gwyer01904 452828 Out of hours 07800 699508
Louise Soulsby 01904 452617 Out of hours 07800 699526

For cebr, please contact:
Dominic Walley 0207324 2841
Jonathan Said 020 7324 2840
Jaspreet Sehmi 020 7324 2861

Notes to editors:
The Norwich UnionRetirement Index is a report on changes in pensioners’income and household spending compiled for the first time by cebr.The analysis is based on government data from the Expenditure andFood Survey and draws on cebr and Norwich Union’s experienceanalysing the pensioner market. The Norwich Union Retirement Indexanalyses pensioner’s income from different sources, taxpayments and the money they spend on household bills. The indextracks the share of disposable income that pensioners have leftover after they have paid their household bills.

The report is available to journalists in the "Under embargo"section of cebr’s website at password is "fred".

cebr is a leading independent commercial economics consultancy withparticular strengths in macroeconomic and market forecasting. Thereport has been co-authored by cebr staff (for details seebelow).

About Norwich Union
Norwich Union is theUK’s largest insurer. It is a leading provider of life,pensions and investment products and one of the largest financialadviser (FA) providers. FAs provide over 70% of the company'slong-term savings business in the UK. Norwich Union is theUK’s largest general insurer with a market share of around14%, with a focus on insurance for individuals and smallbusinesses. Norwich Union’s news releases and a selection ofimages are available from Aviva's internet press centre

Norwich Union is market leader in the equity release market with28% market share (source SHIP 2006 Q3 figures).

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