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.

And 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, compiled for Norwich Union by the centre for economics and business research, tracks how retirement comfort changes over time by measuring the income that pensioners have left after paying household bills.

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 £14 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 £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 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.”