One-in-four retired people live below the poverty line of £151 a week, the same number as when Labour first came to power in 1997, according to the National Pensioners Convention, which yesterday urged the government to take action.

On the 100th anniversary of the Old Age Pensions Act receiving Royal Assent, which introduced the state pension, the campaign group urged the government to increase the level of the basic state pension and to automatically pay means-tested benefits.

Up to £5bn of benefits for older people go unclaimed each year because of complicated application requirements.

The National Pensioners Convention (NPC) said the rising cost of living - highlighted by the recent 35% increase in bills by British Gas, owned by energy firm Centrica - and the continued decline in the purchasing power of the basic state pension is pushing increasing numbers of older people into financial difficulties.

The organisation believes rising prices mean up to one-in-three pensioner households are likely to be in fuel poverty, defined as spending more than 10% of income on keeping themselves warm, by the end of the year.

Frank Cooper, NPC president, said: "It is a shocking indictment that after 100 years of the state pension we still have millions living in poverty and many more struggling to make ends meet."

The group is calling on the government to raise the level of the basic state pension above the poverty level of £151 a week for all pensioners, and restore its link to earnings immediately .

The government plans to restore the earnings link to the state pension by 2012 or the end of the next parliament and will pay for this by gradually raising the state retirement age to 68 by 2046.

Help the Aged also called on the government to mark the centenary by renewing its commitment to eradicate pensioner poverty. It said the national average income in 2007/2008 was £457 a week, but the poorest 10% of pensioners were struggling to get by on just £150 a week.

The group wants the government to introduce the automatic payment of benefits to people who qualify for them, and link the state pension to average earnings.

Mervyn Kohler, adviser to Help the Aged, said: "The government needs to take a serious look at how benefits are paid. Each year more than £5bn goes unclaimed because of over-complicated application requirements and government departments not talking to each other."

He said guaranteeing take-up of means-tested benefits would lift 500,000 pensioners out of poverty overnight, and a further 500,000 out of deep poverty. Meanwhile, research by the Department for Work and Pensions showed that only half of people think the state pension will still be around when they retire, with 44% sure that it will not be.

The figures come on the back of consumer research showing nearly one-in-10 people have been forced to cut their retirement saving due to the rising cost of living.

Secretary of State for Work and Pensions James Purnell said the challenges today were very different to those in 1908, when just one-in-four people survived to collect the first state pension.

By contrast, one-in-four of people born now will go on to live to be 100, and by 2060 it is expected that someone in the UK will reach 120 years old for the first time - meaning that if the person is a woman they will draw the state pension for half of their lifetime.

A DWP spokesman said: "We would like to give pensioners more but we must balance that with the ability of young people with families to pay taxes. The NPC proposal would cost in the region of £30bn a year in the early years.

"That's equivalent to a rise of around 7p on the basic rate of income tax. This would knock out the National Insurance fund in three years."

From October, the government will make it easier for people to claim the pension credit, housing benefit and council tax benefit entirely over the telephone - without the need to sign or return any claim forms.

The current Pensions Bill has also been amended to allow secure data sharing with energy suppliers to help reduce fuel bills for people on the pension credit.