As many as 1.75m lower paid and part-time workers are missing out on tax relief on their pension contributions worth £60m a year, according to Royal London.
The pensions company, which obtained data through a freedom of information request, said the numbers were half a million higher than it had previously thought.
The problem affects savers who have been auto-enrolled onto a workplace pension because they earn more than £10,000 a year, but earn less than the threshold for income tax, currently £12,500 a year.
However Royal London says that on questioning, government ministers have previously stated that the problem isn’t big enough to tackle cost-effectively.
Whether or not these savers get tax relief on pension contributions depends on their scheme and the arrangements made by the employer.
Where a group personal pension has been selected all savers should get tax relief because it is provided through the ‘relief at source’ method.
However, where employers have selected a trust-based occupational pension tax relief is applied in a different way and those workers earning less than the income tax threshold do not get tax relief.
Government figures suggest that this loophole costs each affected worker £35 a year, suggesting a combined loss of £60m a year.
Steve Webb, director of policy at Royal London and former pensions minister, says: “It is a scandal that so many low-paid and part-time workers are missing out on tax relief on their pension contributions.
"This is the group that most needs a boost to their pension savings. These new figures suggest that the scale of the problem is much bigger than previously thought. It is simply not good enough for ministers to say that it is not cost-effective to deal with this problem.”
The news comes at the start of the new tax year (6 April) as minimum contributions on auto-enrolled workplace pensions rises from 3% to 5% for employees and from 2% to 3% for employers, giving a new total minimum contribution of 8%.
Commenting on the figures an HM Treasury spokesperson says: “We want people to be able to keep more of their hard-earned cash, and that’s why we’ve increased the personal allowance, benefitting millions of people. From this month, everyone contributing to a pension at the minimum automatic enrolment rates should see an increase in their overall pay plus pension savings.
“The government continues to look at the current differences arising from the two processes for paying pensions tax relief and how it can best balance simplicity, fairness and practicality in the way pensions operate.”