In a speech on 4 February 2021, Gabriel Bernardino, outgoing president of the European Insurance and Pensions Authority (EIOPA), stressed the need for an optional EU legal framework for a Pan-European Occupational Pension. In this respect, the Cross Border Benefit Alliance (CBBA-Europe) recently proposed the launch of a new pension institution, the so-called “PEOP”, which will share similar principles with the Pan-European Pension Product (“PEPP”). TontineTrust is currently licensing itself as one of the first PEPP providers in Europe. It is also implementing the first modern 'tontine' pensions, which adhere to the recommended model recently endorsed by the OECD in their "Future of Pensions" report. As the OECD report stated, tontines "enable higher retirement incomes and significantly mitigate risk for consumers as well as any governmental or corporate sponsors". As such, the introduction of the PEOP would further accelerate the adoption of this next generation of lifetime income pensions which are set to revolutionise the retirement benefits industry.
Tontines were on the agenda at the joint Webinar by OECD and the Arab Pensions Conference to discuss the future of pensions as set out in the OECD Pensions Outlook Report which is published every 2 years to guide pension policy makers at their 37 member states. Hear what the Principal Economist & Head of the Private Pension Unit at the OECD as well as Deputy Head OECD Financial Affairs Division had tto say about Tontines
Catherine Donnelly, associate professor at Heriot-Watt University and a fellow at the Institute and Faculty of Actuaries, is a proponent of the vehicles. “Anyone who works on them says, ‘Why wouldn’t you be offering them?’” she says. Tontines address the issue of people not knowing when they will die whilst also not being interested in buying annuities – something referred to as the ‘annuity puzzle’, says Donnelly.
Douglas Appell has done a major expose on the nascent Tontine pensions industry. Read his report & excerpts from his interviews with TontineTrust as well as with institutional pension fund managers in Pakistan, superannuation incumbents in Australia and respected think tank The Brookings Institute in Washington.
(Pakistani) Government employees need lifelong incomes to stay independent and promote public interest. Replacing public pensions with traditional defined contribution (DC) schemes like Voluntary Pension System (VPS) and provident funds (PFs) will destroy the security of lifelong incomes. Government employees will be forced to take greater interest in personal finance. New forms of malfeasance will emerge that will be hard to catch and difficult to reverse. A better alternative would be to offer a superannuation fund with tontine features.
Every 2 years, the OECD Pensions Outlook analyses different pension policy issues in OECD countries & discusses policy guidelines to help governments strengthen the resilience of their retirement savings and old-age pension systems. 2020's report states that '**tontine**-type annuities... **offer real benefits over individual arrangements** in terms of risk mitigation & the level of expected retirement income, **even without an external guarantee from a provider**'. The report concludes that: "Risk sharing in the design of retirement income arrangements offers benefits in terms of risk mitigation and the level of expected income in retirement compared to individual retirement arrangements. The ability for a collective retirement income arrangement to pool risks and smooth funding shocks over time can significantly mitigate the risks that individuals would otherwise bear on their own. This allows for higher retirement incomes to be paid, and ultimately increases the collective capacity of the arrangement to invest in higher risk assets (than just bonds) that can provide a higher expected retirement income overall."
Ahead of our upcoming launch of CDC & PEPP Pensions, we are delighted to announce that we have signed up for the FCA endorsed STAR Initiative. STAR was created as a collaboration between Criterion and TeX to deliver a cross-industry framework which facilitates efficient transfers & re-registrations of consumer’s investments & pension assets from one institution to another. Other members of the STAR Consortium include: Aegon, Aviva, AXA, Barclays, Fidelity, First State, HSBC, Invesco, JP Morgan, Jupiter, Legal & General, Mercer, Northern Trust, Old Mutual Wealth, Prudential, Royal London, Scottish Widows, Schroders, Standard Life Aberdeen, T. Rowe Price, UBS, Vanguard, Willis Towers Watson, Zurich Life.
Over the recent years, pension policy has become an ever more important topic throughout Europe. This article contains a description of the PEPP and its consumer protection elements, potential uses and its Level 2 measures. The Authors conclude that the PEPP can help break down many existing barriers as well as contribute to a high level of consumer protection, for example via limiting the costs and providing detailed information disclosure requirements.
Barrons: Tontines are getting attention around the world as retirement savings vehicles, including in Japan, where some workers pay into a tontine-like annuity from their 50s until retirement, then begin receiving payouts to supplement their national pensions. In the U.S., they could be offered as part of 401(k) or similar plans, or a group of private investors could set one up.
In a world where people are living longer as a result of innovations in healthcare and medicine, tontines provide a necessary solution to retirement insecurity in both the developed and developing societies. State pension funds and federal Social Security would do well to follow the example of Wisconsin and Sweden before millions of elderly American plunge into poverty. The issue of Social Security insolvency should be addressed sooner rather than later; fortunately, many examples exist internationally and in the private sector to pave the way.
Excerpt: As a retirement product, tontines are a rare sight in the 21st century but references to their existence remain in many a mid-20th century murder novel. The likes of Agatha Christie, P.G Wodehouse, Robert Louis Stevenson and even The Simpsons have all made use of the tontine in the name of entertainment. Such references are caricature-like, based on a bygone era, but the age-old product is about to make a comeback. The concept of a retirement tontine is simple; a group of people pool their assets together and receive a sum of money paid to them for the rest of their lives. Whenever someone in that group dies, the remaining members benefit from a share of the deceased member’s assets.
The new PEPP Regulation lays the foundation of a new pan-EU standard for personal pensions that work alongside national pension schemes. The PEPP standardises certain core personal pension product features including: - Robust consumer protection rules, - Detailed investment rules including upon how sustainable the investments are, - A limit on fees at 1% per year unless the product needs to contain a guarantee element, - Transparency requirements including reporting of the ESG standards, - Switching rights that enable portability when a saver moves to another Member State.
You would be forgiven if the first time you saw a Tontine pension you thought it looked too good to be true compared to normal pensions. For the same reason, you would also be forgiven if you initially thought that Tontines are anything less than 100% legal & safe. Below is a list of perfectly safe & legal existing tontines but first let's clarify the origin of the misunderstandings above. But you don't have to take our word for it, below are some keys pieces of legislation & research on tontines.
When Swissair went bankrupt in 2001, there was a light at the end of the tunnel. The employee pension fund was run independently. To top that, the pension fund had so much spare cash that the last surviving member was on target to receive a bonus of €370m! Rather than treating the last member like a Euromillions lottery winner, the trustees agreed it would be fairer to keep increasing the payouts of all of the members every year making everyone a winner. Read on to learn more about the Swissair 'Accidental' Tontine.
Tontines, an ancient form of mutual longevity insurance, could be making a comeback as the number of supporters is growing. Are tontines the answer to the pension world’s prayers or simply outdated? Defined contribution is still a great experiment; while the accumulation phase of DC has now been dealt with at a basic level through auto-enrolment, decumulation still offers no solution that meets what members keep saying they want – a stable income at an affordable price. Could tontines be the answer to DC members’ problems?
In April 2020, award-winning finance professors Kris Boudt (UGent) and Steven Vanduffel (VUB) wrote in MoneyTalk.be: "The coronavirus has done a lot of damage to our economy. By activating savings and investing in Belgian companies via tontines, we can give oxygen to the economy and citizens can increase their supplementary pension". A month later the Belgian government agreed on "a huge grant" to make it happen.
Although conceived in France to finance the coming war against England, the first “Tontine” was launched by the Dutch City of Kampen in 1670 to raise development capital for the city. The Kampen Tontine paid a fixed coupon which every year was split among the surviving members of the Tontine. Several other dutch cities quickly followed before the King of France realised that that Tontine was the answer to his prayers in terms of raising large amounts of capital for the state.
Not so long ago, we published an explainer video to help us raise development capital. The sources, volume & enthusiastic nature of responses over social media were initially confusing until we realised viewers were actually trying to buy the financial product described in the video **over social media**!