Ministers will not be compensating 85,000 people who lost money contracting out their state pension, against the recommendation of the parliamentary ombudsman.
The Department of Work and Pensions (DWP) said the Financial Assistance Scheme, set up to help people whose contracted-out pensions were wound up before they received their full payments, would provide a sufficient package of support.
The scheme was boosted to £2.3 billion in March when Gordon Brown committed an extra £400 million in the Budget, and today pensions minister James Purnell said it would now help about 40,000 people.
In addition, the government intends to publicise a little-used scheme that allows people who decided to take their second state pension to a private provider, but who subsequently face losing out, to get back into the state system for less money.
Under the government's calculations, this should allow about 10,000 people to use whatever money remains in their contracted-out pension fund to be reinstated in the second state pension scheme. The taxpayer would make up any difference in shortfall.
The announcement comes in response to a select committee report this summer which said the government was guilty of "maladministration" in advising people to take money that would have gone to their second state pension and place it in the private sector.
Their report echoed that of the parliamentary ombudsman, Ann Abraham, who warned earlier this year that the advisory leaflets provided by the government over the pension schemes were inaccurate, incomplete, unclear and inconsistent.
She demanded ministers pay back the 85,000 people who have since lost much of their pensions as a result, but the government rejected this as far too expensive.
In today's response, the DWP says it "maintains its position that the information issued was not misleading and that the government is not responsible for the losses experienced by the individuals affected".
"The government believes FAS offers significant support to those who are closest to retirement age and represents the appropriate level of assistance that should be expected of the taxpayer," it says.
Mr Purnell added: "We have real sympathy for those who have lost their occupational pensions and this is why we have put the FAS in place.
"However, we do not believe that the taxpayer should be expected to underwrite what were private company pension schemes."
But shadow pensions secretary Philip Hammond said the solution was "far from satisfactory", noting that the proposed solution for 10,000 people still left a total of 115,00 people who had lost part of their contracted out pensions since 1997.
"It is disgrace that the government continue to defy the ombudsman and deny all responsibility for pensions that have been lost under their watch," he said.
"We accept the ombudsman's finding of maladministration and we accept that mistakes were made. The government should do the same."