Tontines could be making a comeback, providing alternative for retirement income

An investment vehicle popular in the Victorian Age but plagued by scandals early in the last century may be coming back. The vehicle is the tontine, a type of investment pool from which members draw annual dividend payments after paying a lump sum, and from which surviving members draw more in dividends as participants die off. In some tontine arrangements, the corporate organizer of the tontine keeps whatever has not been paid out; in others, the remaining survivor gets whatever capital remains. While assets in tontines accounted for about 7.5% of the nation's wealth in 1905, according to a recent article in The New York Times, embezzlement scandals involving insurance companies led to legislation that banned tontines in many states. The current retirement crisis due to inadequate savings coupled with advances in technology and regulation make conditions right for a revival of tontines, say academics, including Moshe A. Milevsky, an associate professor of finance at York University in Toronto. A tontine's appeal, says Prof. Milevsky, is that it provides the regular income of annuity and delivers even more income for living participants because of its structure, simplicity and lower cost of operations. Advocates say that managing tontine operations would be easier today than it was a century ago because of automation, and because developments such as blockchain technology would make for greater transparency and less likelihood of fraud. Because tontines have elements of a lottery, state gambling laws, as well as insurance regulations, would have to be revised to allow for tontines, say those who believe tontines could have commercial appeal. Insurers currently are lukewarm to the idea of reviving the vehicle, perhaps because it is likely to be less profitable than other products. Actuaries, however, are doing research on them, the Times said.