"OF all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive," wrote CS Lewis.

"Those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience."

Gordon Brown may like to reflect on these words when he contemplates the utter shambles that pensions have become in this country.

His imposition of a 10 per cent tax on dividends earned by pension schemes, soon after the present government was elected in 1997, is one of the biggest causes of the chaos.

Dividends are important to the long-term health of pension schemes. Taxing them makes it more likely that company pensions will not have sufficient assets to meet liabilities.

This is partly why many of the country's biggest employers have abandoned final salary schemes in favour of cheaper money purchase schemes.

More than eight million people are still members of final salary schemes, but this will change dramatically for the next generation of workers as more and more firms are closing them to new entrants.

The tax on dividends and the stock market falls between 2000 and 2002 had a devastating effect on the assets held by many company schemes.

As the assets have fallen below liabilities employers have found themselves staring into a bottomless hole into which they are expected to pour money.

This is not only bad for the companies and their employees. It is bad for the country, especially at a time when the number of pensioners is increasingly rapidly and no-one seems to known how they will be supported.

The Association of British Insurers and others believe the government should put employers at the centre of pension provision.

They say pensions work best when there is active employer engagement. Experience shows that a modest employer contribution results in a big increase in scheme membership. The problem is that making contributions is not easy - especially for small employers.

The ABI has proposed a Pension Contribution Tax Credit - a fiscal incentive for employers to contribute towards employees' pensions.

Research shows that employers would respond well to such an incentive.

This seems to make good sense, and John Hutton, David Blunkett's replacement as Work & Pensions Minister, should look closely at it as he struggles to solve Britain's pensions crisis.

First published: November 8