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Comment by rundmc | Hacker News Reader

Tontines have no liabilities so do not need guarantees. Therefore incomes do not suffer from the underwriting fees of insurers.

This means that tontine payments typically start meaningfully higher than annuities at the outset even before the faster acceleration kicks in.

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I guess I don't understand what you mean when you say "tontines have no liabilities." Mechanically, the way that a tontine works (or at least the way that they worked historically) is that I give you a fixed amount of money today, and in exchange you promise me a series of payments that are contingent on my life and the lives of the others in the risk pool. That promised series of payments is a liability, as a matter of accounting but also for all other practical purposes. Maybe you have a different structure in mind, but I don't see a way to operate a tontine-like product without a balance sheet.

The liabilities of the insurer are typically fixed amounts regardless of investment performance or changes in mortality. If and when the insurer miscalculates they will be wiped out if their assets don't match their liabilities.

Modern tontines are structured more like the Dutch/Swedish/Danish state pensions (the safest in the world) which have the ability to adjust the ongoing payments to members based upon the investment returns and mortality experience.

Asides from saving on the cost of guarantees, the fact that the trustees of the tontine don't have to cover their liabilities by only investing in low-yield bonds means that the trustees are free to invest in a much broader set of asset classes which in the OECD's opinion will generate higher returns resulting in the tontines being able to provide meaningfully higher levels of retirement income to the members.

> The liabilities of the insurer are typically fixed amounts regardless of investment performance or changes in mortality. If and when the insurer miscalculates they will be wiped out if their assets don't match their liabilities.

Again, for deferred annuities (and immediate-election GLWB annuities), which make up the vast majority of annuities that are sold and in force today, that's generally not true. The guaranteed credited rates on fixed and indexed annuities sold today are typically very close to zero (often 0.1% to 0.25%), and the guaranteed option budgets on modern variable annuities are often negative, which gives insurers a ton of leeway to reprice inforce policies as needed.

> Modern tontines are structured more like the Dutch/Swedish/Danish state pensions (the safest in the world) which have the ability to adjust the ongoing payments to members based upon the investment returns and mortality experience.

So pay-as-you-go? Does volume risk get passed along to the members, i.e., your payment in a given period is proportional to the amount of new money that gets put in during that period?

I'm with you on the asset issue, it would be great to have a less capital-heavy way to hedge longevity risk so that people aren't stuck funding their retirements with low-yield interest-bearing assets. But I don't think pay-as-you-go is a great workaround. Volume risk is significant even if you're a state-level actor and can make participation compulsory; I imagine it would be much worse as an individual player in the private sector.

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