Private sector pensions cost the taxpayer more than public sector pensions in 2007/08, Richard Murphy, founder of Tax Research LLP says.
In a damning new report, Murphy breaks down data from 2007-08 and finds total pensions payments made in the UK by both the public and private sector was £177.6bn.
Murphy claims £57.6bn in state pensions was paid, £25bn was paid to public sector pensioners, and £35bn was given out by private sector pension providers.
However, the total cost of government subsidies to the UK private pension industry was £37.6bn or around a quarter of the government's fiscal deficit.
This, the report claims, means all private pension payments made that year were paid by the government.
"The private pensions industry is the most heavily subsidised industry in the UK," Murphy says. "Even the defence industry does not get as much as £37.6bn.
"Pensions do not even manage to pay out any return; it was all effectively paid by the state, so why not cut out the middle man?"
Murphy says this subsidy is made more controversial by the lack of investment from pension providers in job creation.
"All pension funds are being put into speculative investment, rather than investing in anything that creates jobs, so where is all this money going? They are giving nothing back for their subsidy," he adds.
Murphy's report claims the deficit is largely due to the subsidies paid to private pensions.
He says pension subsidies between 1998 and 2008 totalled at £300bn, whilst 2009 public borrowing stood at £617bn, which means half government debt arose from subsidies to private pensions over the previous decade.
However, Tom McPhail, head of pensions research at Hargreaves Lansdown, says Murphy has missed the point of tax relief.
"Tax relief is a way of deferring taxation on the income in order to encourage deferred consumption," McPhail says.
"Murphy offers up a straw man in stating the general assumption is the state pension is the problem.
"The suggestion the entirety of pension payments in 07/08 was funded by the government displays either a fundamental misunderstanding of the mechanisms underpinning the private pension system in the UK, or a deliberate misrepresentation of the facts."
Ros Altmann director-general of Saga, says the report has "some basic fallacies."
"The report confuses time horizons by suggesting that tax relief today pays for all pensions today.
"It fails to mention today's pension savers are much greater in number than today's pensioners but as the baby boom generation comes up for retirement, the numbers of pensioners is set to soar and, therefore, tax relief now is supposed to help offset the cost of rising numbers of pensioners in future," she adds.
John Lawson, head of pensions policy at Standard Life, says the report contains a number of inaccuracies.
"The total cost of tax relief for 2007/08 was £29.7bn as recorded by HMRC," Lawson says.
"Against this, £10.2bn was received as tax from pensions in payment, so the net annual cost of private pensions for that year was £19.5bn. National insurance relief of £8.6bn was granted giving a total cost of £28.1bn
"The headline in the report hinges on this £37.6 billion figure when the correct cost is much less."
Lawson adds it tax relief has allowed the UK to build up the pension assets it has, and says stopping tax relief would be short-sighted.
Warns on profits
Hargreave Hale seeking legal advice
Latest news and analysis
First mentioned in Cridland Report