These insurers, as well as LV=, were applauded for not reducing income for these pensioners when RPI went negative earlier this year.
LV= customers will see RPI-linked annuity payments increase again as soon as the UK emerges from deflation.
But Axa, Aviva and L&G will recoup some of the costs incurred by waiting until the index has exceeded its previous level before increasing customers’ income payments.
Some pensioners with Standard Life, Prudential and Just Retirement RPI-linked annuities saw their incomes drop.
Standard Life has around 6,000 customers with an RPI-linked annuity without a floor option while Prudential says it has 9,000 clients in this position.
Aviva head of retirement propositions Darren Dicks says: “The intention of an annuity which escalates in line with RPI is to provide the same level of income in real terms throughout the life of a customer.
“When the index returns to its previous level prior to deflation, then income will increase again, so in real terms the customer will have the same level of income.”
LV= head of annuities Matt Trott says: “There is no point keeping income artificially high if, when prices start rising, your income does not rise to keep track of it.
“That is key to the product – that it does keep track with rising prices.”
Hargreaves Lansdown pensions analyst Nigel Callaghan adds: “It will surprise many investors to learn that, having incurred the substantial cost of an RPI-linked annuity, it does not automatically increase when deflation comes to an end. An RPI-annuity can be a double-edged sword.”