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Dec 06 - UK: Retirement index shows how cost of living is outstripping pensioners' income

The latest Norwich Union Retirement Index reveals how pensioners’ disposable incomes are being squeezed as household bills rise at a faster rate than pensions.

The most recent quarterly data reveals that between the first three months of 2006 and April to June 2006 average pensioner household income 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 by measuring the income that pensioners have left after paying household bills. It has been compiled by the centre for economics and business research (cebr), one of the UK’s leading economic consultancies and commentators on UK and global economic trends.

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

The report shows that between August 2005 and August 2006, the costs of fuel, gas and electricity rose by 9%, 39% and 27% respectively – costing pensioners an additional Ł14 a month in total. Overall, pensioner household bills climbed by 8.6% over this period – more than three times the rate of inflation as measured by the government’s consumer price index (2.4% October 2006).

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

• Gas bills – up Ł55
• Electricity bills – up Ł41
• Water charges – up Ł20
• Central heating repairs, house maintenance, fuel costs – up by nearly Ł20
• Council tax and domestic rates - up Ł27.

Brendan Kearns, product development manager at Norwich Union Personal Finance, said: “Norwich Union commissioned this index to look at the challenges faced by retired people, and to see how pensioners’ disposable income is changing. Retirement is often regarded as a time when pensioners should be enjoying their life but rising household bills mean that many on fixed incomes are struggling.

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

Dominic Walley, managing economist of cebr, said: “When Norwich Union asked us to compile the Retirement Index, we looked at the data as far back as 1995 and found that 2005 was the worst year for pensioner comfort. Rises in household bills have affected everyone, but pensioners have been hit hardest. And poorer pensioners have it the worst.

“Even though the government has tried to help them in successive budgets, they generally do not have large equity-based savings and have not benefited as much from the stock market recovery over the past three years.”

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

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

Notes to editors:
The Norwich Union Retirement 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 and Food Survey and draws on cebr and Norwich Union’s experience analysing the pensioner market. The Norwich Union Retirement Index analyses pensioner’s income from different sources, tax payments and the money they spend on household bills. The index tracks the share of disposable income that pensioners have left over after they have paid their household bills.

The report is available to journalists in the "Under embargo" section of cebr’s website at http://www.cebr.com/newsroom.html. The password is "fred".

cebr is a leading independent commercial economics consultancy with particular strengths in macroeconomic and market forecasting. The report has been co-authored by cebr staff (for details see below).

About Norwich Union
Norwich Union is the UK’s largest insurer. It is a leading provider of life, pensions and investment products and one of the largest financial adviser (FA) providers. FAs provide over 70% of the company's long-term savings business in the UK. Norwich Union is the UK’s largest general insurer with a market share of around 14%, with a focus on insurance for individuals and small businesses. Norwich Union’s news releases and a selection of images are available from Aviva's internet press centre at www.aviva.com/media

Norwich Union is market leader in the equity release market with 28% market share (source SHIP 2006 Q3 figures).