<p>Indexation of pensions is an important feature of all pension systems, affecting both the sustainability of pension systems and the standard of living of the elderly. Although the importance of pension indexation is beyond doubt, its exact quantitative effects on the sustainability of pension schemes and on the well-being of retirees are far from being sufficiently clarified in the literature. Moreover, the effects of pension indexation from the point of view of a single pensioner are completely different from the effects prevailing at the aggregate level, and the lack of this distinction can be a source of serious confusion. Since there is a trade-off between pension indexation and the replacement rate, the evaluation of the indexation mechanism is much more complicated than it seems. We demonstrate that in the case of a budget-neutral aggregate benefit ratio, different indexation mechanisms essentially provide the same present value of pension payments even if the interest rate significantly differs from the internal rate of return of the pay-as-you-go pension scheme determined by the Aaron theorem. These results suggest that other factors such as the optimal consumption path of the elderly and income inequality must also be considered in the choice of indexation methods.</p>