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Tontines: Are they too good to be true?

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.

Tontines: Are they too good to be true?

TLDR: There is a perception that something about the nature of a tontine is inherently “illegal”. This is absolute nonsense. But for an insurance company selling a less appealing product that enables them to make higher profits from consumers then it is in their financial interest to perpetuate the myth.

Below you can find a list of perfectly legal existing tontines but first let's clarify the likely origin of the misunderstanding, namely two key pieces of tontine history need to be understood. For the record, albeit I am not a lawyer and this is not legal advice, I’ll point out some keys pieces of legislation & opinion on tontines. Part of our mission is that the next generation of tontines will set new benchmarks for all future financial services products in terms of transparency & value for money.


Tontines were prevalent throughout Europe hundreds of years ago with perhaps the oldest notable tontiner being William Shakespeare whom could afford his life as a playwright due to the growing income from a tontine pension that started paying him at 17.

But history was made when in 1654, banker Lorenzo Di Tonti (after whom all later schemes were named) proposed a Tontine structure as a means of reducing the cost of long term borrowing for the then King of France. In the following centuries, tontines were used by government and states all over Europe and the first English tontine was issued even prior to the creation of the Bank of England.

However the costs associated with existing tontines issued by the King seemed to be never ending because the last tontine members were living longer than expected & because cheaper means of long term debt had been found, the English parliament passed legislation to ban the King from issuing any further (expensive) tontines.

Interestingly, the English parliament continued to allow the King to issued tontines backed by the Irish government which it controlled at the time. So back in the dark ages, government tontines were banned in the UK because the long-lived members were being paid too much money.

But London’s Richmond Bridge was financed with a tontine and I personally know at least one English family that was very grateful for being a member of a registered tontine society in the 20th century.

And since 2002, England and 30 countries of the Europe Economic Area have implemented legislation detailing tontines as “associations of subscribers are set up with a view to capitalising their contributions jointly and subsequently distributing the assets thus accumulated among the survivors or among the beneficiaries of the deceased (tontines)”.

But within Europe, tontines are most commonly used in France where they have the effect of reducing inheritance tax for very wealthy clients. It is in Switzerland however that we find the largest private tontine, the CHF 1.7BN SwissAir Pension Fund but even that is dwarfed by the national pension system of Sweden which is basically run like a Tontine.

### And then the Americans had to go & get involved….

Tontine Pensions were introduced to the US market by Equitable Life 150 years ago. Their runaway success saw all insurance companies quickly replicate the product and within 40 years more than half of US households contained a member of a tontine and tontine assets accounted for over 7% of US national wealth. However, to enhance the profitability of the products for the insurers, the policies included toxic clauses such as the ability of the insurer to “cancel” membership of the tontine if a members monthly payment was not recorded in time by the insurer. Clauses such as this led to numerous court cases and finally an investigation in 1906 which found that the insurers and/or their employees had tampered with the assets and membership ledgers of the tontines and as such had been defrauding all of the tontine members. Legislation was quickly enacted that banned the issuance of these tainted types of tontines. Without the toxic clauses however insurers had to actually pay all of the profits to the tontine members and so the insurance industry moved on to selling other, more profitable, products.

### Time & Technology has Moved On

Since the turn of this century, multiple peer-reviewed academic papers have been produced designing actuarially fair mass-market private and public tontines. The math is well known and while there is no specific legislation in the US as there is in Europe, an Award Winning 2015 paper by Prof Jon Forman (whom has testified before the House of Congress and has advised the US Internal Revenue Services as well as Omaha state pension funds) concluded a lengthy legal analysis of a potential modern tontine thus:

“As long as tontine financial products maintain good records, make adequate disclosures, and ensure that the underlying investment assets are held by independent custodians, the (US) SEC should be satisfied.”

I am not going to argue with Prof Forman (actually I did try once!), tontines are coming back to the US but for now the lead has been taken by other countries with various new versions of (often diluted) tontines being issued in Japan, Australia, South Africa, Australia.

A growing list of Existing Tontines around the world can be found here

Please let us know if you find any that we should add.


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