The Low Incomes Tax Reform Group (LITRG) has backed an Office of Tax Simplification (OTS) report that shows millions of pensioners could have been missing out on the existing 10% tax rate - and should claim back any overpaid taxes.

It follows the OTS recommendation that the Chancellor scraps the 10p rate because "awareness and claim levels are so low that it is ineffective in incentivising savings".

Instead, in its 'Review of pensioners' taxation: final report' - published this month - the OTS recommended "that any savings incentives should be focused around Individual Savings Accounts (ISAs) as they have high levels of brand recognition and awareness and are already in place".

The OTS also said: 'We would advise against any changes to the savings tax regime which involve complicated eligibility calculations or a reclaim process, because they create barriers to take up.'

In an earlier OTS report from 2009, it estimated that the UK' senior citizens had £1.9bn of tax deducted from their savings by banks and building societies. It also found that around 2.4m pensioners had paid around £200m more tax on savings income than they should have.

Those over-65s on low incomes may now be owed money by the government because they paid the 20% tax on their savings interest, when they should have paid none, even the 10% rate, now being recommended for the chop by the influential body.

Kelly Sizer, of the Low Incomes Tax Reform Group, which has long campaigned for a friendlier and simpler tax system for pensioners, said: 'The LITRG fully supports simplification of tax reliefs and allowances with the proviso that any savings are reinvested to benefit older and disabled taxpayers who most need the help those systems are currently intended, but largely fail, to provide.

'The 10% savings rate is a prime example of such failure. Due to its complexity, many who are eligible for it fail to claim back tax overpaid - money that is rightfully theirs. By contrast, far more people understand that Individual Savings Accounts are tax-free, so focusing savings incentives around ISAs by removing the 10% rate in favour of an increase in the ISA limit is likely to benefit those whose income is at or near the level of the personal allowance.

'It is welcome that the OTS report has drawn attention to the fact that many are missing out on the existing 10% rate and that people might be encouraged to review their affairs and claim back tax which has been genuinely overpaid in the last four years.'