The National Employment Savings Trust has been urged to review its policy of paying death benefits directly to members' estates, a practice which means the money is subject to inheritance tax.
According to auto-enrolment provider Salvus Master Trust, Nest's policy of paying death benefits policy was almost unique in the industry, and meant members risked losing 40 per cent of their savings unnecessarily.
The provider claimed the issue was especially urgent because, as of next month, Nest members will be able to contribute the full £40,000 a year into their pension, rather than the current £4,900 limit.
Members of the government-backed master trust will also be able to transfer other pension pots into their Nest pot, something that is currently banned.
Both restrictions applied exclusively to Nest, and were imposed to ensure the one government-backed provider in the market did not have a competitive advantage over private players.
Steve Goddard, the founder of Salvus Master Trust, said unlike "virtually all" occupational schemes, Nest was not a discretionary trust.
He said that meant death benefits paid to beneficiaries may be subject to inheritance tax (IHT).
"Whilst Nest has, until now, largely been viewed as the 'workplace pension provider of last resort' for those on lower incomes and with fewer assets, the lifting of these restrictions, coupled with the fact that funds held under Nest count as part of an individual’s estate on death, means many more members could fall into the inheritance tax trap."
He said there was "a real concern" that members could lose "a significant amount of the value of their pension pot to IHT on death".
Graham Peacock, managing director at Salvus, urged Nest to treat its members "fairly".
"It is completely inappropriate that members should face inheritance tax whilst using a DWP backed workplace pension.
"It completely flies in the face of industry-wide efforts to create an auto-enrolment landscape that is simple, transparent and trustworthy," he said.
Gavin Perera-Betts, Nest's executive director of product and marketing, said the master trust's approach to death benefits was designed to keep costs down for the majority of members.
"We know that IHT will impact a very small proportion of our membership and applying trustee discretion to all pots can be costly. That is why in the event of a member’s death their Nest pension pot is included in their estate for IHT purposes," he said.
However, he added that Nes regularly reviewed its policies and processes.
"With the annual contribution limit and the restrictions on transfers into NEST lifting in April, we will continue to consider our policy in relation to member deaths to ensure that it continues to effectively balance the needs of our members," he said.
Nigel Sycamore, an auto-enrolment business adviser and director of Clear Workplace, said it was unlikely many Nest members would have IHT liabilities, even 20 or 30 years down the road.
However, he added: "It underlines the importance of due diligence on the part of employers and accountants when choosing a scheme."