What You Need to Know
- A tontine is a pool of assets with payouts that depend partly on how many participants are still alive.
- Tontines are still common in France, and potentially could be revived in the United States.
- Some experts believe a tontine-based system would complement the country's private annuity market.
Some retirement policy specialists want to create a new U.S. personal pension program based on tontines.
Financial professionals who paid attention to the history lessons in their early licensing exam courses may have vague memories of tontines being a problem that U.S. life insurers outgrew.
But some policy specialists contend that well-designed, well-regulated tontines could help meet modern workers’ income investing needs.
“Tontines demonstrate the ability to deliver more in retirement income at lower costs than commercial annuities,” Angela M. Antonelli and Christopher Mungiello write, in a report on a November 2021 policy forum organized by the Georgetown University Center for Retirement Initiatives.
What It Means
The desperate hunt for income investing ideas could lead researchers to scour archives, and the world, for product and program ideas.
If there is a people on a small desert island that has come out with an interesting twist on preparing for retirement, economists will track that down.
Meet the Tontine
“A tontine is a longevity-protected income solution where a group of individuals contributes to the same fund,” according to Antonelli and Mungiello’s report on the forum tontine discussions.
“Once individuals are in retirement, the assets in the tontine begin to pay out a portion of the pot to the beneficiaries, but as more people die, the payouts adjust depending on the number of beneficiaries remaining in the pool.”
A carefully regulated insurance company backs a modern U.S. annuity.
In contrast, an insurance company does not back a tontine, but the pooling of many individuals’ pensions can give individuals more security than they would get from ordinary individual retirement arrangements or 401(k) plan accounts, according to the forum report.
The authors note that modern tontines can be offered either through a closed pool or a pool that accepts new members in perpetuity.
Tontines can be provided either as packaged investment accounts or as separate accounts, and they can put target date funds or similar funds on the investment option menu.
Historians credit the Italian Lorenzo de Tonti with either creating the modern tontine or increasing the popularity of this type of investment arrangement, according to An Introduction to the History of Life Assurance.