The government and the pension industry have ignored a second pensions mis-selling scandal to rival the £11.5bn disaster that dominated the 1990s, a leading consumer group said yesterday.

Which?, formerly the Consumer Association, said research showed an estimated 4.5 million people who contracted out of the state second pension - the successor to Serps - into a personal pension were likely to get less than if they had stayed in the scheme.

It said savers were encouraged to transfer funds from their state second pension, which acts as an earnings-related top-up to the basic state retirement scheme, to their private or occupational pension scheme. Which? said research showed 71% of them were likely to be worse off.

More than £35bn of state funds have been transferred into private-sector schemes since the then chancellor, Nigel Lawson, launched the scheme in 1988.

A spokesman for Which? said the consumer group was so alarmed by its findings that it was issuing advice to consumers highlighting the potential loss of retirement income from opting out of the government scheme. He said the group also informed the pensions minister, Stephen Timms, and the chief financial watchdog, the Financial Services Authority, of its findings.

In the last year, several insurance companies have advised personal pension holders that they would be better off contracted back into the state scheme. In May, Norwich Union told 40,000 pension savers they would be contracted back in to the state scheme but left 180,000 contracted-out policyholders who bought their pensions through independent financial advisers to make up their own minds.

Since 1988, the government has handed over £35bn of national insurance contributions to the pensions industry to invest on behalf of those people who were advised to opt into a personal pension.

The then Tory government wanted to encourage personal pension saving and end traditional reliance on the state. Incentives encouraging pension savers to contract out were scrapped in the late 1990s but ministers remained silent about the potential for savers to miss out on the low but guaranteed returns offered by the state system.