Four unions and a pensioner organisation, with a combined membership of 1.1 million, are backing a joint appeal against the Chancellor’s decision last year to use the Consumer Prices Index instead of the Retail Prices Index to uprate social security, state and public sector pension benefits.

The claimants in the Court of Appeal are Prospect, the FDA, GMB, National Union of Teachers and the Civil Service Pensioners’ Alliance. A separate appeal has been submitted on behalf of another group of unions including Unison and Unite, and all parties are co-operating closely in the legal process.

Prospect general secretary Paul Noon said: “The CPI switch is just one of the measures the government is seeking to introduce as part of its pensions reforms. It must be challenged as it would cut the income of our members in retirement, in both the public and private sectors, by up to a quarter. We remain committed to reaching an agreement that gives fair and sustainable pensions to all our members.”

In December the High Court rejected by a 2:1 majority the unions’ argument that the switch to CPI put the government’s desire to cut the deficit ahead of its duty to consider changes in the general level of prices, and was therefore unlawful.

The court also rejected the argument that CPI is not an appropriate indicator of inflation because instead of measuring increases in prices it assumes consumers will switch to cheaper goods. The unions are appealing against both rulings.

The CPI switch was announced in the June 2010 Budget without consultation and took effect from April 2011. Prospect and others had challenged the decision because over time CPI is 1.4% lower than RPI, according to the Office for Budget Responsibility. Compounded over years of retirement, that will result in average losses of 15% to 25% in the total value of members' pensions.

The government has also given private sector schemes the green light to make the same change except where the rules of a scheme specifically state a link to RPI. The Department for Work and Pensions last year calculated this will reduce the value of pensions accrued in the private sector by over £70bn. The impact on state benefits and public service pensions will be even higher.