Tontines: A Practitioner’s Guide to Mortality-Pooled Investments

Tontines and similar mortality-pooled investment arrangements offer a useful and unique value proposition to the global retirement challenge.

A tontine is a financial arrangement in which members form an asset pool and agree to receive payouts from it while living and to forfeit their accounts upon death. Forfeited balances are then apportioned among the surviving members. So, members earn not only investment returns but also mortality credits for as long as they survive.

A key feature of tontines is that they pool the longevity risk of their members. Pooling diversifies the risk and allows members the assurance of lifetime income. Because they offer no guarantees, payouts will vary depending on investment performance and the mortality experience of the membership pool. Dispensing with the cost of guarantees allows tontines to be cheaper than comparable insurance products.

The study of tontine design has emerged recently as a specialty of its own. The discipline represents a paradigm shift relative to the disciplines of either traditional investments or insurance.

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