Savers lose by giving up inflation-proofing Pension savers who have given up inflation-proofing on their pension in return for a higher starting level income can end up losing 40 per cent of their retirement cash, according to research into so-called pension increase exchanges (Pies). These deals have become more popular in recent years, as employers have looked for ways to contain the costs of offering final-salary pensions. But it has emerged that the exchanges have been far from good value. Many savers have been attracted to these deals by the appeal of a higher income earlier in retirement, which can benefit those in ill health. However, the way such a swap is calculated has not always been transparent or clearly communicated to the pension scheme member. Now, the extent of the poor value of these exchanges has been revealed - with some members offered two-thirds or less of the value of their inflation cover. "In most offers, the exchange is about 70 per cent but it has been as low as 60 per cent," said Kevin Wesbroom, managing principal at Aon Hewitt, the consultants. Employers needed to make a profit from the exchange and the savings were often used to boost the solvency of the pension scheme. It is estimated that up to 100,000 members of final-salary schemes have been offered a Pie, by major employers such as ITV and BT. Take-up rates have ranged been 10-50 per cent, say industry experts. A Pie is typically calculated by taking into account the member's age, inflation expectations, fund size and the element of their pension that qualifies for the uplift. In spite of the complex nature of this calculation, most employers did not offer financial advice to their members to help them decide if it was in their best interests. "This isn't a straightforward decision and there are probably very many people who have taken the higher cash who will be left with thousands of pounds less in retirement," said Dr Ros Altmann, director-general of Saga Group, the over-50s advisers. A new industry Code of Practice has been introduced to help members decide if a pension exchange offer is fair value. This voluntary code says that, if the uplift being offered is not favourable to the member, then the employer should provide formal independent advice - although a member can elect to receive more streamlined guidance from a pension's specialist instead. If the offer is "cost neutral," then employers have the less onerous requirement of offering members guidance to help them make up their minds. While individuals cannot back out of deals they have already accepted, Altmann said that the guidance isn't strong enough to protect members in future. "Guidance isn't enough," she warned. Members need to be given a range of inflation scenarios to really make an informed decision about how their income will be affected.