“With a tontine, it’s just further risk sharing, where the returns and mortality are going to drive the payouts,” said David Blanchett, Lexington, Ky.-based head of retirement research for PGIM, the asset management arm of Prudential. “In theory,” he added.
But what you gain in clarity you lose in consistency and certainty. With tontines, there are no guarantees. It’s even possible that the pooled money could diminish in value, leaving survivors with nothing.
Will tontines be coming to the U.S.?
Guardian Capital’s tontines are offered only in Canada, but Milevsky hinted that it may only be a matter of time before they or something similar becomes available in the U.S.—if regulators allow them. “As a reminder, the first ETF was invented in Canada,” he said, referring to the Toronto 35 Index Participation Units (TIPs 35), which were launched three years before State Street Global Investors introduced the S&P 500 Trust ETF (SPDR), the first ETF in the U.S.
Guardian Capital isn’t the first Canadian company to introduce tontines. The University of British Columbia’s faculty pension, established in 1967, works like a tontine. And last year, Toronto-based Purpose Investments introduced a “longevity pension fund” on a similar principle.
But are tontines likely to become standard in the future? Academics seem to think it’s possible.
They’re not going to single-handedly “solve retirement,” said Milevsky. But he said they should be a part of a balanced retirement portfolio, another option for a problem that’s only growing worse as more people live longer.
“The murder mysteries are based on a winner-takes-all approach that is not at all like how a real-world tontine would work,” said Wade Pfau, director of the retirement income certification program at The American College of Financial Services in King of Prussia, Pa. A modern tontine, he clarified, is simply another way of pooling resources and sharing risk. There are potentially many winners.