Falling pension incomes and the rising cost of living have led to a rise in the number of older people selling their homes and moving into rental properties in order to fund their retirement, according to latest research.

Tenant referencing specialist HomeLet said there had been a 16% increase in the – admittedly small number – of people aged between 66 and 70 who have sold their home and become tenants over the past 12 months. The firm said 1,074 people had swapped home ownership for rental accommodation.

It also found that 43% of new tenants in July aged over 66 were previously living in a home they owned, compared to 37% in July 2010. The firm said the fact that about 2 million pensioners in the UK are living in poverty suggests older people are selling their homes to release equity to fund their increasing living costs.

John Boyle, managing director of HomeLet, said: "Pensioners are already feeling the pinch with the spiralling costs of fuel, energy bills and basic food. Combined with a reduction in income, old people are increasingly struggling to pay to live through their retirement. This suggests the number of pensioners having to sell their home to move into rented properties could increase even more over the coming years."

The HomeLet survey emerged as a Department for Work and Pensions report on life expectancy in 2011 shows that today's 20-year-olds are three times more likely to reach 100 than their grandparents (and twice as likely as their parents), and by 2066 there will be more than half-a-million people in the UK aged 100 or above.

The report, which uses forecasts from the Office for National Statistics, also indicates that a girl born in 2011 has a one-in-three chance of living to their 100th birthday

, a boy has a one-in-four chance and, compared to a baby born in 1931, the children of 2011 are almost eight times more likely to become centenarians.

Annuity rates at rock bottom

The HomeLet figures have been published as global stock markets plummet as a result of nervous investors dumping stocks amid fears about the strength of the US economy and the ability of European governments to contain the debt crisis. The turmoil could see pension schemes falling in value as a result.

Worst hit are those approaching retirement, because they won't be able to make up the losses; while falling markets have also sent annuity rates to rock-bottom lows. Annuity rates determine how much pension income you get in return for the money you saved during your lifetime, so this means pensioners retiring today will see a lower income.

Equally bad for prospective retirees was last week's news that 2.5 million nurses, teachers and civil servants face pension contribution increases totalling more than £1bn next year if proposed changes to their occupational pension schemes are implemented.

The Cabinet Office, Department for Education and the NHS have published consultations on pension contribution increases that will cost scheme members £180m, £300m and £530m respectively in the financial year 2012-13, with further increases in following years.

Joanne Segars, chief executive of the National Association of Pension Funds, said: "Sadly, many people get a rude shock when they retire and find themselves struggling for money, especially with the rising cost of living. Those without savings or a private pension are particularly hard-pressed and may need to sell their home to unlock some cash. This can be very distressing.

"Others will have planned on using property as part of their pension and, having done well out of the housing boom may be selling up to downsize or rent until the market settles."

The HomeLet figures form part of the group's regular Rental index survey, which gathers data on agreed rents from more than 3,000 letting agents across the UK. The latest survey indicates that, after increasing by just 0.3% in June, the average UK rental price in July increased by 2.2% to £680, rising to an average £1,154 in greater London.