Building a new, sustainable model for pensions with Dean McClellan from Tontine Trust [Podcast]

What connects Louis XIV, Agatha Christie, the New York Stock Exchange and the Simpsons? The tontine. This is a type of financial instrument that could help address our global crisis in pensions, which are set to be underfunded by hundreds of trillions by 2050. Unlike today’s defined contribution pensions plans (forget about getting a defined benefit pension), a tontine is a pooled fund made up of members who share returns on their investment. When someone dies their initial stake remains in the pool, increasing the payout to those lucky, longer surviving members. In this way it provides a certain way of providing continuing, and ultimately rising, incomes for those who live longer. One of the first ones in France made a final payout in 1726 to the last member of 73,000 livres, not a bad premium on longevity for the widow who had made an initial investment of 300 livres.

These types of pooled investments have been used to fund capital projects, with the last survivor getting ownership of the building, which happened in the case of Richmond Bridge in the UK, and the New York Stock Exchange. Tontines have also featured in popular culture, for example the storyline of an Agatha Christie novel (e.g. ‘4:50 from Paddington’, which was remade as Murder She Said) and the Simpsons. The idea of bumping off the last remaining members of a pool is as old as patricide.

This podcast is a discussion with Dean McClelland, founder and CEO of Tontine Trust who’s building a new type of tech-enabled tontine for today’s world. Note Dean was also interviewed by Real Vision here.