Tontine

A tontine (English pronunciation: /tɒntiːn/) 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.

Tontines are regulated in Europe under the Directive 2002/83/EC of the

European Parliament[1] and are still common in France.[2]

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]

Tontine Hotel sign, Ironbridge,

Shropshire, UK
Contents
History
Concept
Patent
Uses and abuses
Projects funded by tontines
Tontine pensions in the US: 1876–1906
Criticism from competitors
Modern regulation
Tontine pensions
Variant uses of the term
In popular culture
References
Sources
External links

History
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]

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]

Concept
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]

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.

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. This version has often provided the plot device for mysteries and detective stories.

Patent
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.

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.

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.

Some notable tontine-funded projects included:

First page of Dousset 1792 French
Richmond Bridge, across the River Thames west of London, was patent for a tontine
financed using a tontine in 1774.
The Tontine Hotel in Ironbridge, Shropshire, stands
prominently at one end of the Iron Bridge from which the town
takes its name: it was built in 1780–84 by the proprietors of
the bridge to accommodate tourists who came to view this
wonder of the industrial age.
The Tontine Coffee House on Wall Street in New York City,
built in 1792, was the first home of the New York Stock
Exchange.
The first Freemasons' Hall, London. Subscribers were able to
nominate someone other than themselves as the person on
whose life the share was staked. On the subscriber's death
they could leave their share to that person, or to anyone else.
The scheme raised £5,000, but cost £21,750 in interest over
its 87-year life.[14] The Tontine Coffee House (at left) on Wall
The Tontine Hotel, Greenock, Inverclyde, Scotland, was built Street, New York City
in 1803.[15]
The Cleveland Tontine hotel, near Ingleby Arncliffe, North
Yorkshire, originally a coaching inn on the Yarm to Thirsk turnpike road, was financed using a tontine in 1804.[16]

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.[17]
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.[18]

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".[19] In New
Zealand at the time, another of the chief critics of tontines had been the government, which also issued its own insurance.[20]

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.

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.[21] Similar arguments were put forward in the same year by Moshe
Milevsky.[22] 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.[23] 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).[24]

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."[25]

Variant 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.[26]

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.[27] In West Africa, "tontines" – often consisting of mainly women – are an example
of economic, social and cultural solidarity.[28]

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.[29]

In Singapore, the Chit Funds Act of 1971[30] 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..." [31]

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

La Tontine (1708), a comic play by Alain-René Lesage. A physician, hoping to raise the funds to give his
daughter a dowry, buys a tontine on the life of an elderly peasant, who he then strives to keep alive.
The Great Tontine (1881), is a novel by Hawley Smart.
The Wrong Box (1889), is a comic novel by Robert Louis Stevenson and Lloyd Osbourne. The plot revolves
around a tontine originally taken out for some wealthy English children, and the resulting shenanigans as
younger family members of the two final survivors vie to secure the final payout. The book was adapted as a film,
produced and directed by Bryan Forbes, (1966).
The Secret Tontine (1912), is an atmospheric faux-gothic novel by Robert Murray Gilchrist, set in the Derbyshire
Peak District during a snowy winter in the late 19th century. The plot involves the potential beneficiaries of a
covert tontine, and their scheme to murder their ignorant rivals.
Lillian de la Torre's short story "The Tontine Curse" (1948) features mysterious deaths related to a tontine in
1779, being investigated by Samuel Johnson.
The Tontine (1955), a novel by Thomas B. Costain, illustrated by Herbert Ryman, is set in nineteenth-century
England and tells a story centered around the fictional "Waterloo Tontine", established to benefit veterans of the
Napoleonic wars. Among other plot twists, shareholders hire an actor to impersonate a dead nominee, and
conspire to murder another member.
In 4.50 from Paddington (1957), a Miss Marple murder mystery by Agatha Christie, the plot revolves around the
will of a wealthy industrialist, which establishes a settlement under which his estate is divided in trust among his
grandchildren, the final survivor to inherit the whole. The settlement is described, inaccurately, as a tontine.
Something Fishy (1957), a novel by P. G. Wodehouse, features a so-called tontine under which the investors'
sons stand to gain from marrying late.
In the U.S. television series The Wild Wild West, Episode 16 of Season Two (1966–67) – "The Night of the
Tottering Tontine" – finds James West and Artemus Gordon protecting a man who is a member of a tontine
whose members are being murdered one by another.
"Old Soldiers," an eighth-season episode of the television series M*A*S*H, focuses on a tontine set up among
Colonel Potter and several of his Army buddies from World War I. While taking shelter in a château during an
artillery barrage, they had found a cache of brandy and drank all but one bottle, which they set aside for the last
survivor. After the only other surviving member dies, Potter receives the bottle in the mail and shares it with his
staff, drinking first to his departed friends and then to the new ones he has made at the 4077th.
In the Barney Miller episode "The Tontine" (1982), one of the last two surviving family members who invested in
the tontine attempts to kill himself so that the other can have the money before growing too old to enjoy it.
In The Simpsons episode "Raging Abe Simpson and His Grumbling Grandson in "The Curse of the Flying
Hellfish"" (1996), Grampa Simpson and Mr. Burns are the final survivors of a tontine to determine ownership of
art looted during World War II. Grampa eventually kicks Burns out of the tontine for trying to kill him, but before
he and Bart can do anything with the art, a descendant of the original owner shows up to claim it.
In S. L. Viehl's science fiction multi-volume novel Stardoc (2000), the title character is accused of spreading a
plague to several colony worlds, on one of which the colonists had established a tontine. The sole survivor, a little
girl, consequently becomes so wealthy that in the second book of the series – Beyond Varallan (2000) – she
buys the bank behind the colonies to free the Stardoc from the debt she now owes.
 The 2001 comedy film Tomcats features a variation on a tontine where the last investor to get married gets the
full amount of the invested funds.
In the Archer episode "The Double Deuce" (2011), Archer's butler Woodhouse is revealed as one of three final
survivors of a group of World War I Royal Flying Corps squadron mates who each put £50 into an interest-
bearing account, now worth nearly a million dollars. The office workers at ISIS HQ, realizing that a new tontine
could capitalize on the high mortality rate of field agents, begin persuading people to join.
The Diagnosis: Murder episode "Being of Sound Mind" (Season 8 Episode 16) features a tontine as a motive for
murder.

References
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3). eur-lex.europa.eu. Retrieved 2017-10-17.
2. Ingram, Miranda (2008-08-29). "Property in France: Keep it in la famille now and for ever" (https://www.telegraph.
co.uk/finance/property/international/3363847/Property-in-France-Keep-it-in-la-famille-now-and-for-ever.html).
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rement-annuity.html?_r=0). nytimes.com. 2017-03-24. Retrieved 2017-03-27.
4. Jennings; Swanson; Trout (1988), p. 107
5. McKeever, Kent (10 February 2017). "A Tontine before Lorenzo de Tonti's! The Lisbon Tontine Proposal of 1641"
(https://news.law.fordham.edu/jcfl/2017/02/10/a-tontine-before-lorenzo-de-tontis-the-lisbon-tontine-proposal-of-16
41/). Fordham Journal of Corporate & Financial Law Blog.
6. Chisholm, Hugh, ed. (1911). "Tontine" (https://en.wikisource.org/wiki/1911_Encyclop%C3%A6dia_Britannica/Ton
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7. Milevsky 2015.
8. Weir 1989, pp. 95–124
9. Weir 1989, pp. 103–104
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200:15:0::::BUILDING:34078). Historic Scotland.
16. "About The Tontine: History of The Tontine" (https://www.theclevelandtontine.com/about/). The Cleveland Tontine.
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17. Bernstein, William J. (2015). "King William's Tontine: Why the Retirement Annuity of the Future Should Resemble
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du/faculty/Pages/item.aspx?num=35348). Harvard Business School Case Collection. 708-034. Retrieved 11 May
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19. Buley 1967, p. 291.
20. Buley 1967, p. 472.
21. Forman, John Barry; Sabin, Michael J. (2015). "Tontine Pensions" (http://www.pennlawreview.com/print/163-U-Pa
-L-Rev-755.pdf) (PDF). University of Pennsylvania Law Review. 163 (3): 755–831.
22. Milevsky, Moshe A. (2015). King William's Tontine: Why the Retirement Annuity of the Future Should Resemble
its Past. Cambridge University Press. pp. 170–97. ISBN 978-1107076129.
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217551). SSRN.
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ASIN B07V2PLNJ6 (https://www.amazon.com/dp/B07V2PLNJ6). ISBN 978-1-944960-75-9.
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(http://www.cambodia.org.nz/Tontine.htm). 12th NZASIA Conference.
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Appleton-Century-Crofts.
Coudy, Julien (1957). "La Tontine royal sous le règne de Louis XIV". Revue historique de droit français et
étranger (in French). 4th ser. 35: 128–33.
Dunkley, John (2007). "Bourbons on the Rocks: tontines and early public lotteries in France". Journal for
Eighteenth-Century Studies. 30: 309–23. doi:10.1111/j.1754-0208.2007.tb00338.x (https://doi.org/10.1111%2Fj.1
754-0208.2007.tb00338.x).
Gallais Hamonno, Georges; Berthon, Jean (2008). Les emprunts tontiniers de l'Ancien Régime: un exemple
d'ingénierie financière au XVIIIe siècle (in French). Paris.
Jennings, Robert M.; Trout, Andrew P. (1976). "The Tontine: fact and fiction". Journal of European Economic
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Jennings, Robert M.; Trout, Andrew P. (1982). The Tontine: from the reign of Louis XIV to the French
Revolutionary era. Homewood, IL.
Jennings, Robert M.; Swanson, Donald F.; Trout, Andrew P. (1988). "Alexander Hamilton's Tontine Proposal".
William and Mary Quarterly. 3rd ser. 45 (1): 107–115. JSTOR 1922216 (https://www.jstor.org/stable/1922216).
McKeever, Kent (2011). "A Short History of Tontines" (http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=11
08&context=jcfl&sei-redir=1#search=%22fordham%20tontines%22). Fordham Journal of Corporate & Financial
Law. 15 (2): 491–521.
Milevsky, Moshe A. (2015). King William's Tontine: why the retirement annuity of the future should resemble its
past. Cambridge: Cambridge University Press. ISBN 978-110-707612-9.
Weir, David R. (1989). "Tontines, Public Finance, and Revolution in France and England, 1688-1789". Journal of
Economic History. 49: 95–124. doi:10.1017/s002205070000735x (https://doi.org/10.1017%2Fs00220507000073
5x).
Wyler, Julius (1916). Die Tontinen in Frankreich (in German). Munich and Leipzig.

External links
"The Great Tontine Gamble", one of a series of articles by Burton J. Hendrick appearing in McClure's Magazine
in 1906
 The Straight Dope: "What's with tontines, the odd annuities in which you benefit when others die?" (http://www.str
aightdope.com/classics/a3_172.html)
Baker et al. (Winter 2009-2010) "Tontines for the Young Invincibles", Regulation (http://www.cato.org/pubs/regulat
ion/regv32n4/v32n4-4.pdf)
"Forbes Pensions Research Council (Jan 18, 2018) "TontineTrust: Fintech's Answer To The Global Retirement
Crisis" (https://www.forbes.com/sites/pensionresearchcouncil/2018/01/30/fintechs-answer-to-the-global-retiremen
t-crisis/#586b0cd31ff3)

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