
Death pools can bring financial security for the long-lived - cgoodmac
http://www.economist.com/news/finance-and-economics/21723413-modern-day-enthusiasts-hope-revive-ancient-financial-instrument-death-pools?fsrc=scn/fb/te/bl/ed/
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bandrami
This is the fourth thinkpiece advocating tontines I've seen in the past month.
WTF is up with that?

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s_kilk
Perhaps people have been rewatching S07E22 of The Simpsons.

[https://en.wikipedia.org/wiki/Raging_Abe_Simpson_and_His_Gru...](https://en.wikipedia.org/wiki/Raging_Abe_Simpson_and_His_Grumbling_Grandson_in_%22The_Curse_of_the_Flying_Hellfish%22)

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pilsetnieks
Or Archer:
[http://archer.wikia.com/wiki/The_Double_Deuce](http://archer.wikia.com/wiki/The_Double_Deuce)

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mysterypie
Or Barney Miller:
[http://www.imdb.com/title/tt0519144/](http://www.imdb.com/title/tt0519144/)

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dcw303
> and the blockchain, a type of decentralised ledger, could anonymise it

How would "the blockchain" anonymise anything? Isn't it the opposite, if all
transactions are transparent?

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DennisP
ZCash and Monero have strong cryptographic privacy (ZCash with zksnarks,
Monero with ring signatures). Neither has smart contracts, which you'd want
for this application, but the privacy technologies from both will be available
in Ethereum after the upcoming Metropolis release.

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runeks
And both technologies are at the research stage, it should be noted (both
ZCash and Monero have suffered from vulnerabilities that allowed attackers to
create tokens out of nowhere).

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capnrefsmmat
The attack you're thinking of was on Zerocoin, not ZCash; Zerocoin wasn't
built by the team that came up with the zero-knowledge proof ideas, and was
built on top of the original Bitcoin client code IIRC.

[https://news.ycombinator.com/item?id=13672117](https://news.ycombinator.com/item?id=13672117)

~~~
runeks
I stand corrected. However, in the thread you link you it's pointed out that
ZCash has no auditing built in, so it's not possible to actually see how many
coins are in circulation. So saying ZCash hasn't suffered from a bug of this
nature would be presumptuous, although it may be perfectly correct.

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mysterypie
> _The eventual disruption will come not from a traditional asset manager, but
> from a 22-year-old kid in Silicon Valley_

Someone please prove me wrong, but I don't think this is a start-up idea. The
big problem is how would you sell this? It's going to be very difficult.

I have several comments:

(1) The idea is sufficiently complicated that average people won't understand
it. And with retirement money, if they've managed to save some, the average
Joe will be fearful about switching it to something new and different.
(Bitcoin is complicated too, but the average Joe--not the techie Joe--is
driven by greed if he gets into Bitcoin. There's a huge possible upside to
Bitcoin, mining stocks, options and commodities trading, etc. No get-rich-
quick option exists for a tontine.)

(2) The name tontine has to change. There are too many murder mystery and
ghastly "death pool" associations. Beside changing the name, you need to tweak
the concept just enough to deny that the new thing you're selling is a
tontine. "No, ours is not a tontine because ours maximizes payout when it
reaches 100 long-life members, not the last survivor as in a tontine."

(3) The only way I see tontines coming about is by edict. The teachers'
pension fund or the government employee pension proclaims that they are
switching, and that's that. Or they give employees a harsh choice: pay a huge
fee to continue with the normal pension or enroll for free in the tontine.

I suppose a start-up could implement the technology and try to sell it to big
pension funds. That's more like contract work rather than a high-growth
business.

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taneq
They can indeed, at the expensive of also bringing a range of perverse
incentives which result in a whole bunch o' mayhem.

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robzyb
Care to expand on the potential perverse incentives?

Like everything, there are downsides, but there's nothing terribly crazy-bad
about tontines.

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GenericsMotors
I imagine he means that participants might want kill one another when the pool
of cash becomes large enough.

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Noxchi
Isnt this basically what pensions / social security is?

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tpeo
The incentives involved are completely different. Pensioners don't directly
benefit from the deaths of other pensioners, as their individual payments are
unrelated to how many pensioners are out there. They aren't drawing from some
collective pool of money that has been invested in some interest paying
account, but are rather either drawing from their individual savings or are
living off money raised through taxes in the case of state pensions. In both
cases their own pension payments are independent of payments to others.

[Which IMO makes tontines sound even more sucky, because it encourages free-
riding when it comes to how much people put in.]

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FabHK
But pensions are just the same thing as tontines on a larger scale, right? If
in a pension scheme people live longer than expected, pensions will have to
fall (or contributions rise). What's the difference (except scale)?

The article mentions annuities, which are again, in my understanding,
basically the same thing, and highlights that tontines "could be much less
costly than annuities because the risks are not taken onto the balance-sheet
of an insurer" \- not sure I understand that.

The difference alluded to might be that while both annuities and tontines
insure against individual longevity risk, the case of unexpected collective
longevity is borne by the insurer in the case of annuities, but the insured in
the case of tontines.

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Ntrails
Let's have a quick break down. There are two core types of pension:

Defined Benefit: Provider promises to pay $n per year for the duration of your
retirement. Usually inflation linked etc.

Defined contribution: You and your employer put money in an investment vehicle
and on retirement that pot can be used in a variety of ways to fund retirement
(ie annuity, drawdown etc).

Both Annuites and DB pension payments are largely immutable, short of
bankruptcy (of the pension fund / insurer respectively) there is usually no
way to alter the benefits due to pension laws. They cannot be modified down
once promised. For DB schemes the promise could have been made 30 years ago
when interest rates were 10% and life expectency was 10 years on retirement,
annuities are promised on retirement so have a better expected accuracy on
cost. This is why DB pensions are phasing out at high rates - they're
completely unsustainable.

Your core point:

Annuities are just risk pooling, pure ins-sewer-ants, some people die early,
some late, and the insurer redistributes such that everyone gets a slice of
the pie. The insurer takes on the full risk of the average life being longer.

DB pensions are the same distribution/pooling principle, only it's the pension
fund taking on the risk of cohort mortality. Note, there are some really cool
longevity swap transactions being done so funds can better guard against this
risk.

I don't have any sort of understanding of tontines - limited as I am to a
couple of episodes in cartoons for sources. The reason that risks are
expensive on an insurers balance sheet is because of capital requirements -
all risks need to be provisioned for by holding liquid short term investment
grade bonds ("cash") which is a horrific vehicle to hold assets in. Even
though they're only holding a % of their exposure - the tontine avoids that
cost, hence the "cheaper" argument.

IANAA

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fivestar
A tontine isn't really a modern thing--they were all outlawed. The only ones I
am familiar with are from pop culture and literature. I think they are old
world in origin and usually exist within a family or a small group like a
fraternity or club of some kind and usually involve some item that can not be
split up, such as a fine art or perhaps purloined treasure. The idea is that
the last survivor gets the item. That's it. It's not insurance, it's more of a
blood oath.

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gwbas1c
My grandfather just turned 100, and we have no idea how long he'll live. He
could die tomorrow, or he could live another few years.

Most likely, I won't live to his age, but if I do, I don't want the money to
run out.

I don't believe in leaving a large inheritance for my children. (They need to
work for the position in society.)

Some kind of "outlive my savings" insurance is quite appealing because then I
don't have to leave someone or something an inheritance.

Perhaps at a certain age, maybe 80, I could just turn over my retirement for a
guaranteed payment until I die?

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michaelt

      Perhaps at a certain age, maybe 80, I could just turn
      over my retirement for a guaranteed payment until I die?
    

Here in the UK, you can buy something called an 'annuity' \- in exchange for a
lump sum, a company offers you a fixed monthly payment until you die.

Some have extra features - like paying out for your spouse's life after your
death; increasing the payment annually based on inflation; and even partial
refunds if you die in the first five years.

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rbcgerard
I'd encourage anyone interested in the subject to read this paper doesn't
cover tontine's directly...

[https://www.aeaweb.org/articles?id=10.1257/jep.25.4.143](https://www.aeaweb.org/articles?id=10.1257/jep.25.4.143)

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kerkeslager
Okay, so the argument against tontines that I know of is that it encourages
murder, but that argument doesn't seem persuasive to me. The same can be said
for life insurance, which is a commonplace financial instrument. Is there any
other reason that tontines are bad?

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SirLJ
Plan accordingly and leave what is left to your children or the less fortunate
relatives, family first!

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snvzz
Why? It seems arbitrary to me.

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SirLJ
Why not? Maybe it is a culture thing, being originally from Southern part of
Europe...

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monochromatic
I'm sure that's an interesting article behind the paywall.

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gruez
I'm not seeing a paywall?

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jmartinpetersen
I'm seeing a "You’ve reached your article limit" kind of paywall.

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Digit-Al
This relies on cookies. Just open the article in a private browser session and
you will be fine.

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fivestar
Tontine? Not a new concept.

