Employees who leave a company prior to retirement could be worst hit by the switch from RPI to CPI, a pensions expert warns.
In July, the coalition Government announced from 2011 it would link occupational pension payouts to the CPI instead of the RPI inflation measure.
However, some industry figures have claimed this switch could cost pensioners up to a quarter of their pension income.
Andy Tully, senior pensions policy manager at Standard Life, says 25% is "an extreme scenario" but in some cases losses of this size are possible.
He warns the biggest issue could arise when someone leaves a company, as their benefits are frozen at the time of their departure.
"If they change to link to the CPI that is when you could get a 25% cut in payouts and if you are a long way from retirement, you could lose more."
Tully explains there will be difficulties in linking some pensions to CPI and around half of pensions could be protected.
"Some scheme rules use phrases like ‘legal minimum' and some specifically say ‘RPI'.
"If a scheme says RPI, the change won't matter, as it is very difficult to change the rules. Maybe you could change the rules for future benefits, but it would be difficult for present benefits."
Benefits consultancy Pensions Capital Strategies claims the switch to CPI could save FTSE 100 companies nearly £100bn, but Tully says this is not as attractive an option as it seems.
"The switch to CPI could save schemes money. However, there is a lot of legislation preventing schemes from lowering income and if companies cannot automatically move to CPI, many will not try."
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