15 ms·

Tontines may make sense despite their history of disrepute

• joshvm 10y ago
  My favourite example of death related investment is the French housing system, viager. You can buy the rights to a house, but you only get the deeds once the current owner dies. In return for paying the current (often elderly) owner a modest monthly rent plus a lump sum, you get the house for a low price (e.g. 50% off). The lump sum is a fraction of the discount price and the rent is, keeping it morbid, based on French life expectancy. The fun part is you aren't allowed to ask explicitly how healthy the owner is, so it's a total gamble. You might be stuck paying rent to someone who lives until they're 100 or they could die in an "accident" tomorrow. So in addition to checking the walls for damp when you go round, buyers surreptitiously look for medication and disability aids. Presumably some people also go to the trouble of stalking the current owners to gauge how close they are to the coffin. To make things more exciting, if your parents bought a house en viager and they leave it to you in their will (but the owner hasn't died yet), you're on the hook for the payments. If you don't keep them up, the owner can re-sell the house. http://www.connexionfrance.com/explaining-the-viager-system-10211-news-article.html http://www.connexionfrance.com/explaining-the-viager-system-...
  • Someone 10y ago
    If you're unlucky, you end up with http://www.nytimes.com/1995/12/29/world/a-120-year-lease-on-life-outlasts-apartment-heir.html http://www.nytimes.com/1995/12/29/world/a-120-year-lease-on-... (1995): "Andre-Francois Raffray thought he had a great deal 30 years ago: He would pay a 90-year-old woman 2,500 francs (about $500) a month until she died, then move into her grand apartment in a town Vincent van Gogh once roamed. But this Christmas, Mr. Raffray died at age 77, having laid out the equivalent of more than $184,000 for an apartment he never got to live in. On the same day, Jeanne Calment, now listed in the Guinness Book of Records as the world's oldest person at 120, dined on foie gras, duck thighs, cheese and chocolate cake at her nursing home near the sought-after apartment in Arles, northwest of Marseilles in the south of France."
    • hvm 10y ago
      So she lived in a nursing home for 10 years but still didn't let the guy live in the apartment? I know she had the right to it but come on...
      • tomp 10y ago
        If she wanted to give someone money, wouldn't it be better to give it to the poor?!
      • outside1234 10y ago
        He has no rights to the house until she dies. This is perfectly within her contract with him.
        • mathattack 10y ago
          So she can get his payments, and money from a subletter? I guess it's part of the game.
        • st3v3r 10y ago
          Yes, it is. It's still also her being a douche.
        • coldtea 10y ago
          Contract rights have nothing to do with the morality of this...
          • biot 10y ago
            The morality is already clearly established: in exchange for a very small monthly sum, you get the property when the owner dies. The property may be a dedicated rental unit already, so whether or not the owner lives there has no bearing. So it's not just _within_ the contract, it's the _purpose_ of the contract.
            • coldtea 10y ago
  • carlob 10y ago
    This exists in Italy as well, but it usually doesn't include a rent. You just buy the house at a discount. It's very very common in areas which are rapidly gentrifying.
    • Pamar 10y ago
      What is the Italian name for this type of contract?
      • gosub 10y ago
        nuda proprietà
        • Pamar 10y ago
          That's what I supposed (I am Italian myself) but it looks different from the French thing. From what I understand with "nuda proprietà" you buy the apartment but cannot use it until the person in residence dies or voluntarily leaves. But you the owner will not pay anything to the "tenant". So there is no extra spending even if the person using the place lives much longer than expected.
          • carlob 10y ago
            Well nuda proprietà is actually a bit more general a concept: it just means that one person has ownership and the other has all the other benefits. Remember when Berlusconi touted that as the solution to his conflict of interest?
    • ahoy 10y ago
      Don't we just call this a reverse mortgage in the US?
      • djloche 10y ago
        from my understanding, reverse mortgage is a mortgage where the owners slowly encumber their property with debt. If the owners die (or decide to sell), the property is still the owners, but it has the mortgage debt on it so they have to pay that off as part of the process. these days, it is better to just move into a smaller flat and rent out the larger property at market rates.
  • Fradow 10y ago
    Being French, I never heard of someone doing this with strangers. On the other hand, it's a well known way to bypass succession fees : parents sell (or find a way to pass on without monetary exchange) the house in viager to their children, and continue living there until they die. That way, even in a case where there is disagreement in the family later on, parents can't be forced out of the house.
    • pif 10y ago
      Same thing in Italy concerning succession. It exists as well with strangers, but I never heard a regular payment was involved: you just buy the so-called "nude property" and then wait.
      • igravious 10y ago
        "bare property" :)
    • kawera 10y ago
      It's a low-profile business but transactions between strangers aren't as rare as one might think. Paris has a few notaires specialized in rente voyagère working in tandem with financial advisors. I know Toulouse and Aix also have those. It can be a great solution for an old homeowner with meager retirement earnings and no natural beneficiaries.
    • ProfChronos 10y ago
      I thought you couldn't do it with members of your family, has it changed? Didn't have a look at it for a while...
  • teekert 10y ago
    It is also a very strong motive for murder. I wouldn't want to go into such a deal with a stranger who "wins" a very large sum of money when I die...
    • maxerickson 10y ago
      Statistically, people overwhelmingly are not murderers. Even people with motive.
      • teekert 10y ago
        But such a thing would attract them. Like rich people attract kidnappers.
        • Ntrails 10y ago
          Generally people who kidnap believe they can get away with it by never being in the frame as it were. Given that you'd be one of the prime suspects on motive alone in this case, it seems like a bet on being able to commit a "perfect" murder. I don't think it's a likely occurrence
        • sangnoir 10y ago
          Is there a faster way of becoming prime suspect? The kidnapping equivalent would be allowing random people to take out 'kidnap insurance' on you (with your agreement). If it so happens that you are kidnapped, it's pretty obvious which door the investigators will knock first.
      • BurningFrog 10y ago
        But this attracts the few who are.
    • Idontreddit 10y ago
      Actually it wouldn't be. You are buying an asset for 50% off which will continue to go up in price. And you get to pay a rentor a cheap rent to take care of your asset their entire lives. It's a great deal if you can get it. The only time this will get problematic is if housing prices drop and continue to drop.
  • rogov 10y ago
    My American university has bought property in this manner. There were several old houses on the fringes of the campus with elderly owners. The university bought the properties years ago, but the owners continued to live in them until they died. Once the property transferred, the university bulldozed the houses to build new research facilities.
    • thomnottom 10y ago
      You forgot to add "under mysterious circumstances".
    • waqf 10y ago
      Usually in this situation the university becomes the landlord and the inhabitants are protected just under the usual tenancy and eviction laws.
  • koliber 10y ago
    I believe it is called a reverse mortgage in the United States. https://en.wikipedia.org/wiki/Reverse_mortgage https://en.wikipedia.org/wiki/Reverse_mortgage
    • mamurphy 10y ago
      In the states, the bank is lending you money and essentially building equity in your home. If your heirs pay the loan off when you die, they often may keep the house. It's a no-lose proposition for the bank, presuming they charge a profitable interest rate. But, they are not guaranteed to get the house at the end of the deal. >Reverse mortgages allow elders to access the home equity they have built up in their homes now, and defer payment of the loan until they die, sell, or move out of the home. Because there are no required mortgage payments on a reverse mortgage, the interest is added to the loan balance each month. The rising loan balance can eventually grow to exceed the value of the home, particularly in times of declining home values or if the borrower continues to live in the home for many years. However, the borrower (or the borrower’s estate) is generally not required to repay any additional loan balance in excess of the value of the home https://en.wikipedia.org/wiki/Reverse_mortgage https://en.wikipedia.org/wiki/Reverse_mortgage
  • lisper 10y ago
    Israel Horovitz made a movie about it: https://en.wikipedia.org/wiki/My_Old_Lady_(film) https://en.wikipedia.org/wiki/My_Old_Lady_(film)
• retrogradeorbit 10y ago
  "a modern tontine would be particularly suited to soothing the frustrations of 21st-century retirement" You know what would be even better? Higher interest rates.
  • tinkerrr 10y ago
    Interest rates in most of the developed world have been on the decline for almost 30 years. There is no way to just magically increase interest rates in the market. Contrary to the popular belief, the Fed doesn't set interest rates in the economy, and it has even lower power over long-term interest rates [1]. Also, you're interested in interest rates above and beyond inflation, i.e. 'real' rates of return, not nominal. [1] http://aswathdamodaran.blogspot.co.uk/2015/09/the-fed-interest-rates-and-stock-prices.html http://aswathdamodaran.blogspot.co.uk/2015/09/the-fed-intere...
    • retrogradeorbit 10y ago
      I disagree with almost everything you said here. And a blogspot link does not prove your point. It's just someone's opinion. Interest rates aren't directly set by central banks, but of course they influence the cost of borrowing for commercial banks. That's why when central bank rates fall, commercial rates fall too. And visa versa. And why when commercial banks don't lower rates in turn there is political pressure to "pass on the savings". As for longer term rates, they do have power over that by selling one maturity of instrument for the purchasing of another maturity. This has colloquially been called "operation twist". I am fully aware of real vs nominal. But I'm curious. How do you know what real rates are if you do not have a consistent, repeatable, uncorrupted measure of inflation?
      • ucaetano 10y ago
        "It's just someone's opinion" In this case it's Damodaran's opinion, so yeah, it matters, like, a lot. "Interest rates aren't directly set by central banks" The "risk-free" interest rate for a country is. All other rates are derived from it (see CAPM). Interest rates for any loan, or cost of capital for any enterprise is the risk-free rate plus the risk premium. "what real rates are if you do not have a consistent, repeatable, uncorrupted measure of inflation?" You can use a lot of proxies for that, and you'll see cases where there are major disagreements between what the market sees as inflation and what the government says it is (see Venezuela and Argentina, for example, http://www.economist.com/node/21548242 http://www.economist.com/node/21548242). That aside, the market usually has a fair trust of statistical institutions that calculate inflation, because that data is quite transparent.
• imron 10y ago
  Everything old is new again.
• hantusk 10y ago
  A hybrid tontine system is the most common way to save for your pension in Denmark. It is not regarded as sleazy. The companies that run the schemes, has historically been run by unions, and has historically given good yields on their wealth. The largest company of the type is state-owned and it gets money from an obligatory tax applied to all people working in the country. The system will stop working, if politicians begins to tax these pension funds for infrastructure investment purposes, or the pension funds shifts people to financial products that prioritize individual savings/insurance. This "tontine" system is probably the best investment, in terms of securing a good life after 65 years old, if you are among the survivors.
  • q5 10y ago
    >if you are among the survivors Can you expand on this?
    • taejo 10y ago
      The members of the scheme who die relatively young subsidise those who live to an old age: both have paid the same amount in, but the latter draws a pension for a longer time.
      • antihero 10y ago
        And by then it doesn't really matter!
  • tomp 10y ago
    Wait, do the payments actually increase as more people die? If not, it's not a tonine, just regular pension insurance.
    • amag 10y ago
      Well, the money invested by the deceased has to go somewhere.. I'm not sure how the system works in Denmark but in Sweden you choose whether to give the remaining pension to your family or to have it split among the other people in the pension fund that also opted for the split.
• wueiued 10y ago
  There is one problem with that. People can predict their own life expectancy. People who expect to live shorter will avoid such scheme. To give an example: state pension in my (European) country is unfair to men. We live shorter and retire latter. In average women gets 45% more money for the same contribution. As result men are avoiding state pension and use private funds.
  • distances 10y ago
    In Finland this is solved by it not being possible to avoid state pension. You can collect your additional stash, but if you're getting a salary, you will be paying to the pension fund. Yes, women live longer, but in general have a bit smaller pension due to their time off the workforce because of motherhood, and (still) slightly lower salary levels. I don't consider this unfairness towards men any significant issue.
    • caseymarquis 10y ago
      That's an excellent point. It actually helps balance existing inequality. Maybe not 'ideal', but fairly practical.
      • Chris2048 10y ago
        No! You don't balance unrelated, uncorrelated things. Do we now abandon efforts to reduce gender roles, or pay-gap differences because that would upset the balance. Are women who don't become mothers owed a greater pension? Refusing to fix one problem, due to some illusion of karma is ridiculous. Should we also abandon cancer-cures out of concern for those who are short-lived by other causes?
        • hermannj314 10y ago
          Can you elaborate? Why is it wrong to base individual pensions payments on individual contributions? I'm not following. Are you just saying it wrong to lump people into two different groups arbitrarily? Like we don't base social payments on two arbitrary cohorts like "people over/under 68 inches of height", so why would we base it on gender?
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• lmm 10y ago
  She probably rented it out. Socialist Europe tends to frown on property standing empty, but there's no reason the guy should've got the rental income.
  • Kristine1975 10y ago
    >Socialist Europe Say what now?
    • mathgeek 10y ago
      What are you asking, exactly? It's pretty well accepted that parts of Europe are socialist. France, while it has been moving away from socialism in some ways, was pretty socialist at the time of this story.
      • gerikson 10y ago
        How do you define "socialism" in this case? State-owned companies? Usual in much of Europe, but hardly sufficient for "socialism"? Distributive taxation? Preferable treatment of unions in labor disputes? You need to define your terms otherwise it just becomes a word.
        • harperlee 10y ago
          Both the strong rule of law on ownership rights and the sofistication of finance operations that enable these arrangements seem to me more related to a highly capitalistic society where two parties can arrange such contracts, than a socialist or communist one where property is a more "flexible" concept that can be overriden when it is deemed adequate by the government - and that discourage people with money into entering such agreements.
        • mathgeek 10y ago
          There's no need to be pedantic about definitions. France had a socialist government as recently as 2014: http://www.washingtontimes.com/news/2014/aug/25/frances-socialist-government-folds-over-economic-d/ http://www.washingtontimes.com/news/2014/aug/25/frances-soci... There are other countries in Europe that have or have had (and moved on from) socialist governments in recent history.
• RockyMcNuts 10y ago
  Makes sense, it's like crowd-sourced life insurance. - http://blog.streeteye.com/blog/2015/09/tontines-strange-name-great-idea/ http://blog.streeteye.com/blog/2015/09/tontines-strange-name... But insurance companies love selling insanely high-priced annuity products, and US laws around insurance, securities registration, taxes make it hard/impossible. Regulation can be premature optimization / standardization. (or insurance company rent-seeking)
• warfangle 10y ago
  > There was rampant shadiness back in the day, including countless swindles perpetrated on the public, both related and unrelated to the tontine. Bribery of newspapers and politicians was also routine, as was embezzlement and plain theft. Magazine exposés riled the public with stories of secret payments and secret blackmail of public officials. And WaPo thinks our current financial industry can do better? Sounds a lot like NINJA loans and synthetic CDOs ...
• nugget 10y ago
  It seems to me that the middle/upper middle classes moving from defined benefit (old school pension plans) to defined contribution (401k plans) was a chance for them to build up (and learn to sustainably manage) real capitalistic wealth that could be passed down to their kids. It's not a stretch to predict that to the extent the vast majority of these folks store their wealth in annuities, or similar plans that effectively evaporate upon death, the result will be much smaller estates/inheritances which would reinforce or even worsen the wealth inequality that exists today.
• mdasen 10y ago
  I don't see how this is really different from an annuity beyond getting a bonus payment when someone dies and not being funded in a way that you're sure the money won't run out prematurely. With an annuity, a company sells you a plan that will pay you $X/mo for a lump sum of $Y. Those that die below actuarial estimates end up paying in more than they get out while those that continue living get the profits from it. I guess the difference is that with an annuity, you're expecting the monthly payments to be pretty close to what you're paying in over a normal life expectancy. So, a million dollar annuity with a 10-year life expectancy might net you $8,000-$8,500/mo. By contrast, a tontine would see you put in a million dollars and then maybe get $3,000 per month with a 10-year life expectancy with those that outlive others getting more money as time goes on. So, if you live long and others die, your payment might go up to $10,000 or $15,000. Is that the point of the tontine? But why on earth would that be the future of retirement? An annuity is predictable. The risk is borne by the company selling it. With a tontine, you get unlucky and everyone lives long and you're in a bad situation. In the best case, your payments go up, but why would you want the chance at $10-15k after others have died rather than $8k predictably always? An annuity already spreads the risk and uncertainty of life expectancy. That's the problem we're trying to solve. An annuity already lets you profit off those who die early who have paid in more than they take out - and if you live long you get more than you paid in. If you want to add the morbidity of the tontine to your retirement plan, take out life insurance policies on your friends and cash in when they die young and lose money if they live a long life. Combined with an annuity and you basically have the tontine. You get regular payouts from the annuity and you profit when your friends die via life insurance policies on them. But looking at that, why bother with the life insurance policy? Why wouldn't you just get the annuity and have a predictable, steady income? * You might not like companies that sell annuities and think they aren't a good investment. However, they're sound compared to some hacked-together, crowd-sourced thing that isn't backed by someone reliable with deep pockets. I won't personally buy an annuity, but they're based off spreading the risk in a conservative enough way to guarantee predictable funds (along with a reasonable profit for the company). An under-funded tontine that has people live longer than expected would simply run out of money and leave people destitute.
  • adaml_623 10y ago
• ja30278 10y ago
  "There was rampant shadiness back in the day" ...this is an actual quote from a major paper? Maybe I'm just getting old, but this seems like unbelievably sloppy language for someone being paid to write.
  • burkaman 10y ago
    This is a blog/column. I'm not sure this article appeared in the actual paper.
• lallysingh 10y ago
  So, it's a shame you can't do this over a blockchain, to verify honesty of the payouts -- no way to make sure that someone's still alive.
  • yakult 10y ago
    The government keeps legally meaningful records of deaths. It can be done. Blockchain assassination market was a thing a few years ago, IIRC. Obama and Bernake had prices on their heads. I wonder if these two products can be combined somehow, Highlander style.
  • allemagne 10y ago
    I mentioned this in another comment, but I think it would be feasible to hire somebody for a small price to investigate the statuses of the participants once per year as well as implementing some sort of biometric dead man's switch.
• theorique 10y ago
  The old British comedy "The Wrong Box" tells a story about a tontine and its consequences.
  • maxerickson 10y ago
    The Simpsons did it in Raging Abe Simpson and His Grumbling Grandson in "The Curse of the Flying Hellfish".
    • jshevek 10y ago
      Also, Archer: The Double Deuce
    • FireBeyond 10y ago
      And for that matter, in Archer, too. Woodhouse and his army buddies set up a tontine.
• huherto 10y ago
  I don't think I would like to invest on something called "tontine"; "tonto" means dummy in Spanish. White Snow's Dopey is called "tontin" in Spanish. Lone Ranger's friend Tonto had to be renamed "Toro" as in bull.
  • prodmerc 10y ago
    I thought that Tonto's name was the joke/point?
• wueiued 10y ago
  ... and fuck men who live shorter.
  • dang 10y ago
    Please don't post this sort of angry unsubstantive comment to Hacker News. It's destructive of the spirit of the site, which is intellectual curiosity. We detached this comment from https://news.ycombinator.com/item?id=11861314 https://news.ycombinator.com/item?id=11861314 and marked it off-topic.
  • deleted 10y ago
    [deleted]
• andrewfromx 10y ago
  of course, www.tontines.com is a landing page to godaddy
• Lawtonfogle 10y ago
  My biggest concern is the direct benefit off the death of others causing a perverse incentive to kill. There are people who will mug and risk killing you over the money in your wallet, so I could definitely see people being killed over the money in one of these.
• kelukelugames 10y ago
  The title sounds like an ad for local news. Please change the title to what it is.
• repomies691 10y ago
  Couldn't this whole scheme be developed in totally decentralized fashion using bitcoin, ethereum or similar? Would be quite a good idea.
  • orblivion 10y ago
    I was about to say something about needing an enforcement body of some sort. But then I realized you could literally use a dead man switch.
    • fragsworth 10y ago
      Couldn't the members could write a script (or even just have a friend) that keeps them "alive" forever?
      • allemagne 10y ago
        Maybe using some form of biometrics. Or also hiring some sort of private investigator who would keep track of everyone in the tontine primarily via social media and sometimes by physically checking on them. I'd imagine it would be impossible to get around this problem completely though.
  • fragsworth 10y ago
    Probably not, because keeping a trusted account of the alive/dead status of each member doesn't sound feasible.
    • Jtsummers 10y ago
      A potential method would be some sort of "still alive" signal. If it isn't received after X years (how many years missing before you're declared legally dead?), the system would stop paying to your account. This doesn't prevent others from obtaining your credentials and maintaining your account (see people not reporting deceased family members to keep their social security checks).
• Shivetya 10y ago
  Damn, didn't take long to get to the real reason. Governments are scared shitless about the public pension default issue. The hundreds of billions of unfunded liability with regards to public employee pension payments has been well known and no good solution has been found. From straight up state employees to those working for transit authorities. The numbers of truly staggering. So I guess need a new means to sell people on a lower payout? Perhaps this will also end up in a way taking over SS?
• fiatmoney 10y ago
  Pension funds in many cases operate similarly; their finances improve if beneficiaries die early, and in some cases they are required to pay out surplus returns above a certain level. The difference seems to be that pensions operate continuously (ie, they'd only see a demographic effect on payouts if there were a global decline in life expectancy) rather than on a defined batch of customers.
• gwern 10y ago
  Further reading: "Tontine Pensions: A Solution to the Chronic Underfunding of Traditional Pension Plans", Forman & Sabin 2014 http://repozytorium.put.poznan.pl/Content/343995/Szczepanski_Brzeczek_Gajowiak_Systemy_zabezpieczenia_spolecznego_wobec_wyzwan_demograficznych_i_rynkowych.pdf#page=55 http://repozytorium.put.poznan.pl/Content/343995/Szczepanski... "Tontine Insurance and the Armstrong Investigation: A Case of Stifled Innovation, 1868-1905", Ransom & Sutch 1987 https://www.dropbox.com/s/8ubxv59z524fq5s/1987-ransom.pdf https://www.dropbox.com/s/8ubxv59z524fq5s/1987-ransom.pdf http://cyber.sci-hub.bz/MTAuMjMwNy8yMTIyMjM2/10.2307%402122236.pdf http://cyber.sci-hub.bz/MTAuMjMwNy8yMTIyMjM2/10.2307%4021222...
• lisper 10y ago
  Previously on HN: https://news.ycombinator.com/item?id=10299482 https://news.ycombinator.com/item?id=10299482
  • dang 10y ago
    At least we can reuse that debaitified title.
• hermannj314 10y ago
  Can you construct an insurance instrument that behaves like a tontine without breaking the law? I'm imagining some giant network of life insurance policies with thousands of beneficiaries on each policy and automatic rebalancing after every death. I don't know, it just feels like a tontine (illegal in the US) can be constructed through what I assume are legal mechanisms.
• cloudjacker 10y ago
  I like reading about old financial products because the conditions can be recycled as novel