Tontine

From Wikipedia A tontine is an investment linked to a living person which provides an income for as long as that person is alive. Such schemes originated as plans for governments to raise capital in the 17th century and became relatively widespread in the 18th and 19th centuries. Tontines enable subscribers to share the risk of living a long life by combining features of a group annuity with a kind of mortality lottery. Each subscriber pays a sum into a trust and thereafter receives a periodical payout. As members die, their payout entitlements devolve to the other participants, and so the value of each continuing payout increases. On the death of the final member, the trust scheme is usually wound up.[1] Tontines are still common in France.[2] They can be issued by European insurers under the Directive 2002/83/EC of the European Parliament.[3] The Pan-European Pension Regulation passed by the European Commission in 2019 also contains provisions that specifically permit next-generation pension products that abide by the "tontine principle" to be offered in the 27 EU member states.[4] Questionable practices by U.S. life insurers in 1906 led to the Armstrong Investigation in the United States restricting some forms of tontines. Nevertheless, in March 2017, The New York Times reported that tontines were getting fresh consideration as a way for people to get steady retirement income.[5] History The investment plan is named after Neapolitan banker Lorenzo de Tonti, who is popularly credited with inventing it in France in 1653. He more probably merely modified existing Italian investment schemes;[6] while another precursor was a proposal put to the Senate of Lisbon by Nicolas Bourey in 1641.[7] Tonti put his proposal to the French royal government, but after consideration it was rejected by the Parlement de Paris.[8] The first true tontine was therefore organised in the city of Kampen in the Netherlands in October 1670, and was soon followed by three other cities.[9] The French finally established a state tontine in 1689[8] (though it was not described by that name because Tonti had died in disgrace, about five years earlier). The English government organised a tontine in 1693.[10] Nine further government tontines were organised in France down to 1759; four more in Britain down to 1789; and others in the Netherlands and some of the German states. Those in Britain were not fully subscribed, and in general the British schemes tended to be less popular and successful than their continental counterparts.[11] By the end of the 18th century, the tontine had fallen out of favour as a revenue-raising instrument with governments, but smaller-scale and less formal tontines continued to be arranged between individuals or to raise funds for specific projects throughout the 19th century, and, in modified form, to the present day. Uses and abuses Louis XIV first made use of tontines in 1689 to fund military operations when he could not otherwise raise the money. The initial subscribers each put in 300 livres and, unlike many later schemes, this one was run honestly; the last survivor, a widow named Charlotte Barbier, who died in 1726 at the age of 96, received 73,000 livres in her last payment.[14][15][16] The English government first issued tontines in 1693 to fund a war against France, part of the Nine Years' War.[10][16] Tontines soon caused financial problems for their issuing governments, as the organisers tended to underestimate the longevity of the population. At first, tontine holders included men and women of all ages. However, by the mid-18th century, investors were beginning to understand how to game the system, and it became increasingly common to buy tontine shares for young children, especially for girls around the age of 5 (since girls lived longer than boys, and by which age they were less at risk of infant mortality). This created the possibility of significant returns for the shareholders, but significant losses for the organizers.[17] As a result, tontine schemes were eventually abandoned, and by the mid-1850s tontines had been replaced by other investment vehicles, such as "penny policies", a predecessor of the 20th-century pension scheme.[citation needed] A property development tontine, The Victoria Park Company, was at the heart of the notable case of Foss v Harbottle in mid-19th-century England