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The famous Tontine Coffee House on Wall Street - named because it was funded by a tontine - led to the creation of the New York Stock Exchange Tontine coffee house.jpg
The famous Tontine Coffee House on Wall Street - named because it was funded by a tontine - led to the creation of the New York Stock Exchange

A tontine (English pronunciation: /tɒntn/ ) is an investment plan for raising capital, devised in the 17th century and relatively widespread in the 18th and 19th centuries. It combines features of a group annuity and a lottery. Each subscriber pays an agreed sum into the fund, and thereafter receives an annuity. As members die, their shares devolve to the other participants, and so the value of each annuity increases. On the death of the last member, the scheme is wound up.

Lottery gambling which involves the drawing of lots for a prize

A lottery is a form of gambling that involves the drawing of numbers at random for a prize. Lotteries are outlawed by some governments, while others endorse it to the extent of organizing a national or state lottery. It is common to find some degree of regulation of lottery by governments; the most common regulation is prohibition of sale to minors, and vendors must be licensed to sell lottery tickets. Though lotteries were common in the United States and some other countries during the 19th century, by the beginning of the 20th century, most forms of gambling, including lotteries and sweepstakes, were illegal in the U.S. and most of Europe as well as many other countries. This remained so until well after World War II. In the 1960s casinos and lotteries began to re-appear throughout the world as a means for governments to raise revenue without raising taxes.


Tontines are regulated in Europe under the Directive 2002/83/EC of the European Parliament [1] and are still common in France. [2]

France Republic with majority of territory in Europe and numerous oversea territories around the world

France, officially the French Republic, is a sovereign state whose territory consists of metropolitan France in Western Europe and several overseas regions and territories. The metropolitan area of France extends from the Mediterranean Sea to the English Channel and the North Sea, and from the Rhine to the Atlantic Ocean. It is bordered by Belgium, Luxembourg and Germany to the northeast, Switzerland and Italy to the east, and Andorra and Spain to the south. The overseas territories include French Guiana in South America and several islands in the Atlantic, Pacific and Indian oceans. The country's 18 integral regions span a combined area of 643,801 square kilometres (248,573 sq mi) and a total population of 67.02 million. France is a unitary semi-presidential republic with its capital in Paris, the country's largest city and main cultural and commercial centre. Other major urban areas include Lyon, Marseille, Toulouse, Bordeaux, Lille and Nice.

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. [3]

Armstrong Investigation

The Armstrong Commission, formally the Joint Committee of the Senate and Assembly of the State of New York to Investigate and Examine into the Business and Affairs of Life Insurance Companies Doing Business in the State of New York was an investigation begun in late 1905 when the New York State Legislature initiated an investigation of the life insurance companies operating in New York. It began after an accumulation of complaints by consumers and other insurers, and was catalyzed by rumors that James Hazen Hyde, a vice president and expected next corporate president of The Equitable Life Assurance Society of the United States, had charged the expense of an immense costume ball that year to the corporate account.

<i>The New York Times</i> Daily broadsheet newspaper based in New York City

The New York Times is an American newspaper based in New York City with worldwide influence and readership. Founded in 1851, the paper has won 127 Pulitzer Prizes, more than any other newspaper. The Times is ranked 18th in the world by circulation and 3rd in the U.S..


The investment plan is named after Neapolitan banker Lorenzo de Tonti, who is popularly credited with inventing it in France in 1653. In fact, he more probably merely modified existing Italian investment schemes; [4] while another precursor was a proposal put to the Senate of Lisbon by Nicolas Bourey in 1641. [5] Tonti put his proposal to the French royal government, but after consideration it was rejected by the Parlement de Paris. [6] The first true tontine was therefore organised in the city of Kampen in the Netherlands in 1670. The French finally established a state tontine in 1689 [6] (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. [7] 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. [8]

Naples Comune in Campania, Italy

Naples is the regional capital of Campania and the third-largest municipality in Italy after Rome and Milan. In 2017, around 967,069 people lived within the city's administrative limits while its province-level municipality has a population of 3,115,320 residents. Its continuously built-up metropolitan area is the second or third largest metropolitan area in Italy and one of the most densely populated cities in Europe.

Lorenzo de Tonti was a governor of Gaeta, Italy and a Neapolitan banker. He is sometimes credited with the invention of the tontine, a form of life insurance, although it has also been suggested that he simply modified existing procedures.

Lisbon Capital city in Lisbon metropolitan area, Portugal

Lisbon is the capital and the largest city of Portugal, with an estimated population of 505,526 within its administrative limits in an area of 100.05 km2. Lisbon's urban area extends beyond the city's administrative limits with a population of around 2.8 million people, being the 11th-most populous urban area in the European Union. About 3 million people live in the Lisbon metropolitan area, including the Portuguese Riviera. It is mainland Europe's westernmost capital city and the only one along the Atlantic coast. Lisbon lies in the western Iberian Peninsula on the Atlantic Ocean and the River Tagus. The westernmost portions of its metro area form the westernmost point of Continental Europe, which is known as Cabo da Roca, located in the Sintra Mountains.

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. [3]


Each investor pays a sum into the tontine. Each investor then receives annual interest on the capital invested. As each investor dies, his or her share is reallocated among the surviving investors. This process continues until only one investor survives. Each subscriber receives only interest; the capital is never paid back. [9]

Interest A sum paid for the use of money

Interest, in finance and economics, is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum, at a particular rate. It is distinct from a fee which the borrower may pay the lender or some third party. It is also distinct from dividend which is paid by a company to its shareholders (owners) from its profit or reserve, but not at a particular rate decided beforehand, rather on a pro rata basis as a share in the reward gained by risk taking entrepreneurs when the revenue earned exceeds the total costs.

Financial capital is any economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their products or to provide their services to the sector of the economy upon which their operation is based, i.e. retail, corporate, investment banking, etc.

Strictly speaking, the transaction involves four different roles: [9]

  1. the government or corporate body which organizes the scheme, receives the loans and manages the capital
  2. the subscribers who provide the capital
  3. the shareholders who receive the annual interest
  4. the nominees on whose lives the contracts are contingent

In most 18th- and 19th-century schemes, parties 2 to 4 were the same individuals; but in a significant minority of schemes each initial subscriber-shareholder was permitted to invest in the name of another party (generally one of his or her own children), who would inherit that share on the subscriber's death. [9]

Sometimes the names in (4) were well-known people such as kings and queens. This eased the problem of death-verification and also reduced the risk of murder etc. to improve one's chances.[ citation needed ]

Because younger nominees clearly had a longer life expectancy, the 17th- and 18th-century tontines were normally divided into several "classes" by age (typically in bands of 5, 7 or 10 years): each class effectively formed a separate tontine, with the shares of deceased members devolving to fellow-nominees within the same class. [9]

In a later variation, the capital devolves upon the last survivor, thus dissolving the trust and potentially making the survivor very wealthy.[ citation needed ] This version has often provided the plot device for mysteries and detective stories.


First page of Dousset 1792 French patent for a tontine Dousset 1792.png
First page of Dousset 1792 French patent for a tontine

Financial inventions were patentable under French law from January 1791 until September 1792. In June 1792 a patent was issued to inventor F. P. Dousset for a new type of tontine in combination with a lottery. [10]

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 most 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. [11] [12] [13] The English government first issued tontines in 1693 to fund a war against France, part of the Nine Years' War. [7] [13]

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, with significant losses for the organizers. 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.[ citation needed ]

Projects funded by tontines

Tontines were often used to raise funds for private or public works projects. These sometimes contained the word "tontine" in their name.

Tontine Hotel sign, Ironbridge, UK Tontine Hotel sign, Ironbridge, UK.JPG
Tontine Hotel sign, Ironbridge, UK

Some notable tontine-funded projects included:

Tontine pensions in the US: 1876–1906

Tontines became associated with life insurance in the United States in 1868 when Henry Baldwin Hyde of the Equitable Life Assurance Society introduced tontines as a means to sell more life insurance, and meet the demands of competition.

Over the next four decades, the Equitable and its imitators sold approximately 9 million policies—two-thirds of the nation's outstanding insurance contracts. These contracts however contained an obligation to maintain monthly payments and as a result spawned a growing army of policy owners whose life savings had been wiped out by a single missed payment.

The huge piles of cash produced by the tontines' deferred payout structures proved too much temptation for the issuers—especially the profligate son James Hyde. As the funds in the investment account accumulated, they found their way into directors' and agents' pockets. Worse, this loot also migrated into the hands of judges and legislators, who reciprocated with judgments and laws that stymied burned policyholders. [16]

Finally, a 1905 investigation of the US life insurers led to the Armstrong Investigation in the United States and which included an investigation of how the tontines had previously been sold. In essence, the result of the investigation was to ban the continued sale of those tontines which contained toxic clauses for consumers which once removed from the products resulted in lower returns for the Insurance Companies. [17]

Criticism from competitors

When Equitable Life Assurance was establishing its business in Australia in the 1880s, an actuary of the Australian Mutual Provident Society criticised tontine insurance, calling it "an immoral contract" which "put a premium on murder". [18] . In New Zealand at the time, another of the chief critics of tontines had been the government, which also issued its own insurance. [19]

Modern regulation

The First Life Directive of the European Union specified tontines as a class of insurance business to be underwritten by authorised and regulated companies.

Alternative uses of the term

In French-speaking cultures, particularly in developing countries, the meaning of the term "tontine" has broadened to encompass a wider range of semi-formal group savings and microcredit schemes. The crucial difference between these and tontines in the traditional sense is that benefits do not depend on the deaths of other members.

In the UK during the mid-20th century, the term was applied to communal Christmas saving schemes, with participants making regular payments of an agreed sum through the year, which would be withdrawn shortly before Christmas to fund gifts and festivities. [20]

As a type of rotating savings and credit association (ROSCA), tontines are well established as a savings instrument in central Africa, and in this case function as savings clubs in which each member makes regular payments and is lent the kitty in turn. They are wound up after each cycle of loans. [21] In West Africa, "tontines" – often consisting of mainly women – are an example of economic, social and cultural solidarity. [22]

Informal group savings and loan associations are also traditional in many east Asian societies, and under the name of tontines are found in Cambodia, and among emigrant Cambodian communities. [23]

In Singapore, the Chit Funds Act of 1971 [24] defines the application of legislation to the operation of chit funds, which were also known colloquially as tontines but which operated on a different principle more commonly known as a ROSCA (Rotating Savings and Credit Association).

In Malaysia, chit funds are primarily known as "kootu funds", which again are ROSCAs and which are defined under the Kootu Funds (Prohibition) Act 1971 as "...a scheme or arrangement variously known as a kootu, cheetu, chit fund, hwei, tontine or otherwise whereby the participants subscribe periodically or otherwise to a common fund and such common fund is put up for sale or payment to the participants by auction, tender, bid, ballot or otherwise..." [25]

Tontine pensions

In 2015, John Barry Forman and Michael J. Sabin, using modern actuarial techniques to calculate fair transfer payments when participants are of different ages and have made different contributions, proposed a new structure of pension plan on the tontine model, through which large employers could provide retirement income for their employees. They argued that tontine pensions would have two major advantages over traditional pensions, as they would always be fully funded, and the plan sponsor would not be required to bear the investment and actuarial risks. [26] Similar arguments were put forward in the same year by Moshe Milevsky. [27] In March 2017, The New York Times reported that tontines were getting fresh consideration as a way for people to get steady retirement income. [3]

In 2017, Dean McClelland, Richard Fullmer and Jon Matonis and others published a whitepaper to deliver secure low cost Tontine Pensions based loosely upon the Forman, Sabin and Milevsky format under the brand TontineTrust. [28] In 2018, Richard K. Fullmer and Michael J. Sabin expanded on the ideas presented in Forman and Sabin (2015) by showing that participants in an actuarially fair tontine need not be confined to a common investment portfolio or to a common payout method. Their paper introduced the concept of individual tontine accounts (ITAs), which they envisioned as complementary to individual retirement account (IRAs). [29]

In 2019, the CFA Institute Research Foundation published a research brief titled Tontines: A Practitioner's Guide to Mortality-Pooled Investments noting that "the study of fair tontine design is a specialty all its own—one that has emerged only recently." [30]

Tontines have been featured as plot devices in many fictional stories, movies and television programs, including:

Related Research Articles

A pension is a fund into which a sum of money is added during an employee's employment years, and from which payments are drawn to support the person's retirement from work in the form of periodic payments. A pension may be a "defined benefit plan" where a fixed sum is paid regularly to a person, or a "defined contribution plan" under which a fixed sum is invested and then becomes available at retirement age. Pensions should not be confused with severance pay; the former is usually paid in regular installments for life after retirement, while the latter is typically paid as a fixed amount after involuntary termination of employment prior to retirement.

Pension fund E.V.O

A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides retirement income.

Tax advantage refers to the economic bonus which applies to certain accounts or investments that are, by statute, tax-reduced, tax-deferred, or tax-free. Governments establish the tax advantages to encourage private individuals to contribute money when it is considered to be in the public interest.

Railroad Retirement Board United States government agency

The U.S. Railroad Retirement Board (RRB) is an independent agency in the executive branch of the United States government created in 1935 to administer a social insurance program providing retirement benefits to the country's railroad workers.

A chit fund is a type of rotating savings and credit association system practiced in India. Chit fund schemes may be organized by financial institutions, or informally among friends, relatives, or neighbours. In some variations of chit funds, the savings are for a specific purpose. Chit funds are often microfinance organizations.

In Singapore, the Central Provident Fund (CPF) is a compulsory comprehensive savings plan for working Singaporeans and permanent residents primarily to fund their retirement, healthcare, and housing needs. The CPF is an employment based savings scheme with the help of employers and employees contributing a mandated amount to the Fund for their benefits.

The theory of decreasing responsibility is a life insurance philosophy that holds that individual financial responsibilities rise and then decline over the course of a lifetime and that life insurance amounts should reflect those changes. These responsibilities include paying consumer debts, mortgages, funding children's education and income replacement. It is promoted by proponents of term life insurance.

A Self-Invested Personal Pension (SIPP) is the name given to the type of UK government-approved personal pension scheme, which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue and Customs (HMRC).

Pensions in the United Kingdom can be categorised into three major divisions and seven sub-divisions, covering both defined benefit and defined contribution pensions.:

A defined contribution (DC) plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts plus any investment earnings on the money in the account. In defined contribution plans, future benefits fluctuate on the basis of investment earnings. The most common type of defined contribution plan is a savings and thrift plan. Under this type of plan, the employee contributes a predetermined portion of his or her earnings to an individual account, all or part of which is matched by the employer.

In the United States, an annuity is a structured (insurance) product that each state approves and regulates. It is designed using a mortality table and mainly guaranteed by a life insurer. There are many different varieties of annuities sold by carriers. In a typical scenario, an investor will make a single cash premium to own an annuity. After the policy is issued the owner may elect to annuitize the contract for a chosen period of time. This process is called annuitization and can also provide a predictable, guaranteed stream of future income during retirement until the death of the annuitant. Alternatively, an investor can defer annuitizing their contract to get larger payments later, hedge long-term care cost increases, or maximize a lump sum death benefit for a named beneficiary.

Under European Union law, an annuity is a financial contract which provides an income stream in return for an initial payment with specific parameters. It is the opposite of a settlement funding. A Swiss annuity is not considered a European annuity for tax reasons.

A private pension is a plan into which individuals contribute from their earnings, which then will pay them a private pension after retirement. It is an alternative to the state pension. Usually individuals invest funds into saving schemes or mutual funds, run by insurance companies. Often private pensions are also run by the employer and are called occupational pensions. The contributions into private pension schemes are usually tax-deductible. This is similar to the regular pension.

A life annuity is an annuity, or series of payments at fixed intervals, paid while the purchaser is alive. A life annuity is an insurance product typically sold or issued by life insurance companies. Life annuities may be sold in exchange for the immediate payment of a lump sum or a series of regular payments, prior to the onset of the annuity.

Longevity insurance, insuring longevity, also known as a longevity annuity, Qualifying Longevity Annuity Contract or QLAC and deferred income annuity, is an annuity contract designed to provide to the policyholder payments for life starting at a pre-established future age, e.g., 85, and purchased many years before reaching that age.

A Personal Retirement Savings Account (PRSA) is a type of savings account introduced to the Irish market in 2003. In an attempt to increase pension coverage, the Pensions Board introduces a retirement savings account that would entice the lower paid and self-employed to start making some pension provision. The intention was for PRSAs to supplement any State Retirement Benefits that would be payable in years to come.

Moshe Arye Milevsky is a Professor of Finance at the Schulich School of Business at York University, Toronto, Canada, where he has been based and teaching for over 25 years. He earned a B.A. in Mathematics and Physics from Yeshiva University in 1990, an M.A. in Mathematics and Statistics from York University in 1992 and a Ph.D in Business Finance from York University in 1996.

The National Pension System (NPS) is a voluntary defined contribution pension system in India. National Pension System, like PPF and EPF is an EEE (Exempt-Exempt-Exempt) instrument in India where entire corpus escapes tax at maturity and entire pension withdrawal amount is tax-free.

Income drawdown is a method withdrawing benefits from a UK Registered Pension Scheme. In theory, it is available under any money purchase pension scheme. However, it is, in practice, rarely offered by occupational pensions and is therefore generally only available to those who own, or transfer to, a personal pension.

The Swiss pension system rests on three pillars:


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