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Collective Defined Contribution Plans and Tontines:

Updated: Mar 3, 2022

What Costs and Risks Do They Address that Traditional Annuities Cannot?

Two of Nuovalo’s executives participated in the Georgetown University Center for Retirement Initiatives’ Annual Policy Innovation Forum on November 2–3, 2021.

Chief Executive Richard Fullmer spoke on a panel titled “Collective Defined Contribution Plans and Tontines: What Costs and Risks Do They Address that Traditional Annuities Cannot?” He addressed the similarities and distinctions between CDCs and (modern) tontines and emphasized the importance of ensuring actuarial fairness within the DC system, pointing out that:

CDCs and tontines share many similarities, most notably that they offer risk pooling without guarantees. It has been said that CDCs are like tontines with complexities added in, and I think that’s a fair statement because CDCs are more ambitious. Because CDCs target future payout levels, they can create intergenerational biases that favor the old at the expense of the young. In contrast, modern fair tontines are designed to be actuarially fair to all investors, at all times. At its essence, a pure tontine’s only ambition is to decumulate assets over participants’ lifetimes as efficiently as possible.

Chief of Global Strategy and Operations Manuel Garcia-Huitron spoke on a panel titled “International Approaches to Retirement Income: What are Key Trends and Lessons for the U.S. Retirement System?” He addressed pension challenges in Latin America and lessons for the US, as well as innovative options to tackle these challenges in the region. Here is a quote to some of his remarks when asked about whether innovation and improvements must wait for political action, or the industry and other stakeholders need to find their way there to delivering on retirement income: …“There is a lot that can be done without changing any law or getting into comprehensive pension reforms. I do not think that we should wait for political action. Some time ago, I joined a webinar with Peter Diamandis, and I was impressed when he vehemently said that where many see an impossible challenge, he sees an opportunity. It is a fascinating time to be working on pensions as the world is in flux, and many things that were not possible in the past few years are now, thanks to technology and the insights from behavioral economics and advances in financial theory and practice…”

See here for additional information about the CRI policy innovation forum.


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