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 had fallen out of favour for a number of years. However, the feature of the tontine structure that results in an increased income being paid to long-term survivors seems to be seeing a resurgence in a range of innovative modern products. The concept of pooling longevity risk also continues, for example, in some multi-employer pension plans.
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