Minutes read

Morningstar makes compelling case for tontines

Morningstar recommends “old-fashioned tontines as a modern option to cut fees and manage retirement money”....

Morningstar makes compelling case for tontines

A research paper just published by US data provider Morningstar has stressed that proactiveness on the part of the policy-makers to facilitate tontine-style pensions is needed to spare millions of American retirees an uncertain financial future. 

Author Jasmin Sethi explains that the demise of defined benefit schemes has left a vacuum in the US pensions landscape, with many retirees now running the very real risk of running out of money. But while a shift towards long-established annuities would appear the obvious solution to bridge the gap, the paper observes that they remain extremely unpopular and that other sub-sectors of the guaranteed income product universe, notably tontines, offer a much better deal in terms of transparency, efficiency and cost.

According to the paper, in 2019 just 5 per cent of American families held an annuity product. Reasons for this included:

  • High costs due to the funding of income guarantees to cover longevity risk.
  • Complex regulation and structure.
  • The virtual impossibility of being able to compare them without the aid of a professional or special analytical tool.
  • Lack of availability in employer-sponsored plans.

Compare this to tontines, which offer:

  • Much higher levels of income as the pool of participants shrinks.
  • More attractive fees thanks to significantly lower costs of management/oversight and administration, plus the fact that longevity risk is covered by the pool of members rather than expensive insurance.
  • Frictionless assimilation into occupational schemes.

Ms Sethi highlights the adoption of tontine-style schemes that is currently underway in a number of countries and recommends that US Congress follows the recent shift and facilitates tontine-structured products for Americans.

“We hope that such policy initiatives will put pressure on the industry as a whole to become more transparent, competitive in terms of cost, and technologically advanced,” she concludes. 

We’re pleased to add that you couldn’t ask for a stronger recommendation of the merits of our MyTontine pension than that.

You can read a summary of the paper here.

#US pensions
#running out of money
#MyTontine pension
#unpopular annuities


This is some text inside of a div block.

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.

More content
Exclusive updates from Tontine Trust

You can expect about 6-8 emails per year