What about Collective Defined Contribution (CDC) schemes?
We believe that the fair tontine principle should be the foundation of any longevity risk-sharing arrangement, including CDC schemes. We can help CDC sponsors and their providers design and administer their plans fairly and efficiently, in perpetuity.
Is it an annuity?
Tontines do provide annuity-like income, but they are not annuities in the insurance sense of the word because they provide no insurance whatsoever. Rather, a tontine simply pools risk and pays an individual’s retirement savings back to them over time in the most efficient way possible, dispensing with the added costs of insurance and guarantees. So although the exact amount of income is not guaranteed, investors can expect to receive higher payouts on average from a tontine than from a comparable annuity.
Those who desire an insured lifetime income with a guaranteed payout level can buy an annuity. Those who instead desire an assured lifetime payout that is likely (though not guaranteed) to be higher can buy a tontine. Fair tontines also have a number of other benefits relative to annuities:
- They are transparent in terms of operation and pricing
- They do not expose the buyer to insurance counterparty risk as is the case of payout annuities
- They can offer the flexibility to choose from among a number of investment strategies and payout types
- Investors benefit fully from upside potential