The Modern Tontine: An Innovative Instrument for Longevity Risk Management in an Aging Society

ICIR Working Paper Series No. 22/2016

39 Pages Posted: 18 Dec 2017

See all articles by Jan-Hendrik Weinert

Jan-Hendrik Weinert

Goethe University Frankfurt - Faculty of Economics and Business Administration

Helmut Gründl

Goethe University Frankfurt - Department of Finance; International Center for Insurance Regulation

Date Written: July 6, 2017

Abstract

The changing social, financial and regulatory frameworks, such as an increasingly aging society, the current low interest rate environment, as well as the implementation of Solvency II, lead to the search for new product forms for private pension provision. In order to address the various issues, these new product forms should reduce or avoid investment guarantees and risks stemming from longevity, still provide reliable insurance benefits and simultaneously take account of the increasing financial resources required for very high ages. In this context, we examine whether a historical concept of insurance, the tontine, entails enough innovative potential to extend and improve the prevailing privately funded pension solutions in a modern way. The tontine basically generates an age-increasing cash flow, which can help to match the increasing financing needs at old ages. However, the tontine generates volatile cash flows, so that the insurance character of the tontine cannot be guaranteed in every situation. We show that partial tontinization of retirement wealth can serve as a reliable supplement to existing pension products.

Keywords: Life Insurance, Tontines, Annuities, Asset Allocation, Retirement Welfare, Aging Society

JEL Classification: D14, D91, E21, G22, J11, J14

Suggested Citation

Weinert, Jan-Hendrik and Gründl, Helmut, The Modern Tontine: An Innovative Instrument for Longevity Risk Management in an Aging Society (July 6, 2017). ICIR Working Paper Series No. 22/2016, Available at SSRN: https://ssrn.com/abstract=3088527 or http://dx.doi.org/10.2139/ssrn.3088527

Jan-Hendrik Weinert

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

Helmut Gründl (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323
Germany

HOME PAGE: http://https://www.wiwi.uni-frankfurt.de/en/departments/finance/home.html

International Center for Insurance Regulation ( email )

House of Finance
Campus Westend, Goethe University
Frankfurt am Main, D-60323
Germany

HOME PAGE: http://www.icir.de

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