Still, you can see where the confusion might arise. After all, Mr Webb was in 'political-speak' mode. This is where you can reverse the meaning of what a politician says and still have a proposition that’s at least as sensible. And, okay, let’s give Mr Webb his due - to the extent that a pensions pot needs to last far longer than in the past then more imagination might help squeeze out some extra income. But the government’s intended changes are more likely to have precisely the opposite effect - people need their pension savings to last far longer, but these changes will give them every opportunity to exhaust their savings quicker than before. It would be far more logical to stick with the fictional quote - pension savings need to last longer therefore the capital should be confined to assets than can generate assured income for a very long time.
So how can we explain an intention that, in George Osborne's words, means "pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want. No caps. No drawdown limits. Let me be clear - no one will have to buy an annuity"? Obviously, there is a political explanation - Mr Osborne is sweetening middle-class baby boomers approaching retirement. And he is quite happy to see pension pots turned into a taxable form sooner than would have been the case. But the underlying explanation - the imperative behind it all - is that, having wrecked one financial market, the government could only compensate by wrecking another.
The first - and more important - market to be wrecked is the market for money. In a way, it was ever thus. Governments and, more recently, central banks - whose independence from government exists more in form than in function - have an almost-genetic propensity to distort the cost of money that dates back to the time when rulers first wanted to raise the stuff. But the practice of central banks ostensibly acting on their own initiative to damage the money market by distorting interest rates has become particularly bad since the October Crash of 1987. The need has almost always been for cheaper money because the power lies with a combination of debtors (by dint of the masses of debt they carry) and influential players in the financial markets who own lots of marketable debt (by dint of their ability to scream very very loudly).
Obviously, this practice was turbo-charged when the US authorities were foolish enough to let Lehman Brothers go bust in 2008. Interest rates, which had been on a 15-year downward path back then, lurched down ever further and - thanks largely to the super-human efforts of central banks to create money - have stayed rock bottom ever since.
To the extent that the return on annuities must be irrevocably tied to long-term interest rates, then wrecking a market-driven cost of money has wrecked the annuities market as well. Redemption yields on long-dated UK government bonds, which approached 9 per cent in the mid 1990s, have tailed off to about 3.5 per cent currently and annuities rates have tracked them like a long-term moving average. Thus annuities, which were an unpopular home for a matured pension pot anyway, became loathed.
Wrecking demand for annuities won’t solve anything per se. The distortions that caused annuities to be so unpopular - ultra-low interest rates - will remain, at least until something happens that simply makes central banks act. Meanwhile, zero real interest rates will continue to distort other markets; in particular equities and - ominously - the UK’s housing market.
Against that background, many savers can contemplate a different home for their defined-benefit pension pot. High-yield equities may well benefit. At least, consider the following: intuitively - and quite possibly rationally - a lump of capital equally invested in just Royal Dutch Shell (RDSB), GlaxoSmithKline (GSK) and Unilever (ULVR) - combined prospective dividend yield is 4.6 per cent - is likely to produce a better income than an inflation-linked annuity (starting yield for a 65-year-old about 3.4 per cent). And along the way it may generate enough surplus capital to buy that Lamborghini and still leave a decent sum for your grandchildren (obviously much more than an annuity will manage).
Is that Mr Webb's idea of thinking more creatively? Maybe. Obviously, people like me welcome the government's intended changes as much as I disparage the fake justification behind them. Yet just because the logic is phoney does not mean the outcome must be bad. Liberalising the use of defined-benefit pots can produce a good result. In that context, it might be useful to find out which companies are absolutely the UK’s most reliable dividend payers and what their prospects are. Let’s check that out next week.
