The Modern Tontine: An Innovative Instrument for Longevity Provision in an Ageing Society

Project Start:11/2015
Researchers:Helmut Gr√ľndl, Jan-Hendrik Weinert
Category: Financial Intermediation
Funded by:DVfVW

As unfunded PAYG pension systems are increasingly under pressure due to an increasing number of retirees caused by higher life expectancy and decreasing active workforce caused by lower birth rates, funded pension systems gain more relevance. Specifically, there is a demand for additional insurance products which provide age-increasing payouts like a life care annuity. However, traditional life insurance products entail longevity risk for the providing insurer and require a premium loading to cushion this risk. In contrast, a tontine is a product, which can provide an age-increasing payout structure, and at the same time is not exposed to longevity risk. The project will assess the advantages and disadvantages of the tontine using an empirically calibrated model.