Do you need to 'nofollow' affiliate links

This query does come up a few times on Google's webmasters forum, beware of scaremongering.

I have never seen lack of nofollow tag on affiliate links cited as a confirmed reason for a ranking drop  on Google's webmaster forums and it has never been a confirmed reason for a site deindexing.


Update. Google's Matt Cutts finally states the obvious in a clear statement. 

Google’s Matt Cutts On Affiliate Links: We Handle Majority Of Them

We handle the vast majority of affiliate stuff correctly because if it is a large enough affiliate network we know about it and we handle it on our side. Even though we handle I believe the vast majority of affiliate links appropriately if you are at all worried about it, I would go ahead and just add the nofollow because you might be earning money from that.
http://searchengineland.com/googles-matt-cutts-on-affiliate-links-we-handle-majority-of-them-125859


If Google is applying spam penalties to affiliate links then it means that someone in Google is looking at sites and applying link penalties to prevent you passing page rank to your... affiliates. Like this: 'Not only are they trying to pass traffic via that long affiliate tracked url, but also they are trying to pass page rank ! This must stop'

If linking to affiliates was such a big problem for page rank passing, then I presume that Google would compile a list of the major affiliates and discount them. ...Google may have done so already.. (see update)

If you are working on your site and adding affiliate links then putting nofollow tags on will no harm. If you are looking for reasons for rankings drop or site deindexing then I would look elsewhere.

This is also relevant, though regarding banner adverts:

For most cases, Google handles the typical banner ad and all that sort of stuff very well so they dont flow page rank and things are handled appropriately and so if that is the case then I wouldnt worry about that situation.

From :

Should I add nofollow to banner ads?
http://www.youtube.com/watch?v=3SesBNVanGs

I see that it is not precisely the same, but what reason would there be to think that there is a different set of rules for links which are not actually paid links, but affiliate links. And perhaps that is why confirmed instances of lack of nofollow on affiliate links as being the case of problems are so hard to find.

Google, looking for reports of paid links (passing page rank) specifically say here they are not seeking examples of nofollowed affiliates links :

Q: Are you interested in things like affiliate links? Are you interested in hearing about directories in this report?
A: Nope, I’d be most interested in feedback like the examples that I mentioned above, or things like paid posts that might affect search engines. If you’re still unsure what sort of reports we’d like to get, that’s okay. Fortunately, the vast majority of people sending in reports are on the same wavelength and are sending in solid feedback like the examples above. http://www.mattcutts.com/blog/how-to-report-paid-links/