Tontine
\tʌn\ \taɪn\
An early form of investment vehicle that combines features of a group annuity, group life assurance and lottery.
The structure was first devised by Lorenzo de Tonti, a Neopolitan banker, whilst working in France in 1653, hence the name.
Under a tontine a group of individuals who have a common interest in protecting themselves from their own longevity come together. Each investor pays a sum of money into a fund – this is invested and each individual receives a regular income until he or she dies (an annuity). As each member of the group dies, his or her share is divided amongst the survivors – thus the survivors’ income increases as the group declines, until the lucky last survivor receives the entire income.
Tontines as such are now illegal in many countries (including the UK) owing to the incentive they offer for the participants to kill one another, thereby increasing their individual shares. However, the feature of the tontine structure that results in an increased income being paid to long-term survivors is being reinvented in some modern annuity products. The concept of pooling longevity risk also continues for example in some multi-employer pension plans.
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