Hacker News new | comments | show | ask | jobs | submit login
Death pools can bring financial security for the long-lived (economist.com)
45 points by cgoodmac 10 months ago | hide | past | web | favorite | 51 comments

This is the fourth thinkpiece advocating tontines I've seen in the past month. WTF is up with that?

Perhaps people have been rewatching S07E22 of The Simpsons.


I come from the retirement industry, and attention to tontines has been increasing at a steady rate for a number of years.

Some of the drivers of this are:

1) Ageing populations.

2) The people currently pondering retirement have significant assets because they lived through a time of significant economic growth.

3) Increasingly cash-strapped governments and their social security worries

It makes sense when you consider that for people that have been relatively diligent about saving for retirement, they still confront two big risks: longevity (outliving their assets) and long-term care (nursing homes/assisted living). This confronts one of the issues...

The Baader-Meinhof effect combined with a growing awareness of your own mortality?

Unlikely. These articles may be being spurred by some research from two years ago on modernizing tontine pensions: https://en.wikipedia.org/wiki/Tontine#Tontine_pensions

> 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?

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.

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).

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.


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.

Also how would it work if everyone is anonymous? Don't you need to know when people die?

Anonymity comes from not knowing someone's bitcoin address which in many cases is safe to assume.

It is never safe to assume, because it could be (retroactively) revealed at any point in the future. The right term for this is pseudonymity[0], not anonymity.

[0] https://en.wikipedia.org/wiki/Pseudonymity

but... how?

suppose money went from A-->B-->C-->D-->E, and B,C,D never uses an bitcoin exchange / other 'offline' purchase / etc. (Also, B could send to C1, C2, C3 and then so on to hide the track.)

then, how can anyone be sure that A,B,C,D are the same person/different person?

Or... by "retroactively" - do you mean sometime in the future (hopefully far far away) where bitcoin's hash algo. is broken?

Or the simpler answers, something on your computer reveals it, like malware.

Or the person who sent/received money to/from you revels who you are, or information which helps identify who you are.

Or there are warents authorizing authorities to take your devices and then they have all your identies.

Also when you send Bitcoin from a wallet that has received money to multiple addresses, you can't be sure which coins are being sent. As such they can also associate multiple addresses together by which coins they sent.

By design, every single transaction is tracked. Otherwise you'd have a hard time proving that you have any BTC at all. In fact, the miners implicitly verify that all purchases are tracked, by doing something like the following every "block":

new_hash = hash(previous_hash . all_new_transactions . random_number)

You won't immediately know if A, B, C, and D are all the same person, but you can look at what has happened at those addresses (or previous addresses) in the past, and (eventually) what happens in the future, and draw conclusions from that. If you use a new address for every transaction, and never merge your money, you may be able to obfuscate the flow for a while, but you have to make sure you don't leave any patterns in the timestamps, and make sure you generally know what you're doing. Any mistake could mean that people know it's you. Moreover, money is generally used for 'offline' things eventually. You may purchase something from a completely normal person who doesn't obfuscate his transfers at all, and then get outed when the police ask that guy who they got those suspicious coins from.

> 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.

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

Care to expand on the potential perverse incentives?

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

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

Murder, for one.

random acts of mass murder?

Not sure if I'd describe them as random, but yeah.

I don't think this is a realistic concern.

There are many things in life which technically give a perversive incentive to murder or commit other crimes, yet the perverse incentives aren't a show stopper.

One example of this is "I want your Mercedes, I will murder you and steal it."

Another example is a will and testament. Sure, sometimes people murder because of these contracts, but as a society we've done a good job of mitigating this problem.

Isnt this basically what pensions / social security is?

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.]

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.

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.


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.

The difference is what happens when returns aren't as expected.

In a pension, this can only be reflected in the payout up to a point. As such, much of the effect of mis-predicted returns is borne by current pension premiums and the captial buffer of the pension. Same goes for withdrawals, if either more or fewer people survive to benefit from a pension that isn't directly borne by the other pensioners.

With a tontine, the payout is directely linked to total number of beneficiaries and total returns. Any variation is borne directly by the benificiaries. This, means there is essentially no risk in administrating a tontine, as your capital buffer can't 'fall short'. Make the tontine big enough, and the risk averages out.

After amtortizing this risk, a trend-change (e.g. aging population or economic depression) is borne by the administrator in case of a pension and borne by the beneficiaries in case of a tontine.

An annuity is not a tontine. It is a guaranteed payout for a certain period of time. I'm not a fan, but I suppose they can make sense to some people? Like reverse mortgages, they may help someone keep a certain standard of living at the cost of leaving anything to their heirs.

Funny thing about that: In my dad's pension plan he got an increase because so few of his fellow pensioners live to collect much of it. They typically retire and live for about two years and that's it. So the pension fund was adjusted to reflect that reality.

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?

  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.

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

That's exactly what an annuity is.

> They need to work for the position in society

And lose out to children whose parents don't believe this?

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


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?

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

Why? It seems arbitrary to me.

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

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

Archive.is or outline.com are options.

I'm not seeing a paywall?

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

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

The paywall is purely client-side, so disable Javascript and you'll be able to read it

Tontine? Not a new concept.

Guidelines | FAQ | Support | API | Security | Lists | Bookmarklet | Legal | Apply to YC | Contact