mardi 29 septembre 2015

Would tontines work?

There used to be (and maybe still are in other parts of the world) agreements called tontines, in which a group of people pool their resources and the last one living gets it all. There are variations that work something like lotteries. Apparently some economists have proposed that, as a replacement for the disappearing corporate pension plan, a new version of the tontine would be a valid retirement vehicle. A large group of people would buy shares in a closed investment fund; they would receive equal, regular payments from the fund's returns that would increase over time as participants die off; and the last person or specified number of people walking would get all the remaining principle. Variations might involve having the tontine be time-limited, so after 20 or 25 years everybody remaining would get an equal distribution.

Tontines seems to have elements of -- but are not the same as -- annuities, pensions, life insurance and lotteries. Fundamentally you're betting that you will live long enough to get your money back, as with an annuity, and are hoping that you'll last even longer to get the big score, like a lottery. Apparently tontine were a common investment vehicle in the U.S. 100 years ago, but they were banned after extensive fraud was revealed. But properly managed by a legitimate investment company within a tight legal framework, could this work?
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