tontine

A tontine is a financial arrangement in which a group of people contribute equally to a common pool, and the fund pays benefits to the living participants at regular intervals. As members die, their shares are redistributed among the survivors, typically increasing the amounts paid to those who remain. In the classical form, the last surviving participant receives the remaining principal and any accumulated benefits.

How it works: participants contribute to a pooled fund that is invested or managed to generate payout income. At each interval, payments are made to the living members. When a member dies, their share is reallocated to the survivors, often in proportion to their remaining rights. This process continues until only one participant remains, who then receives the entire fund. The design can create increasing payments for the living and a strong incentive for younger participants to join and older ones to stay.

Origin and history: The tontine is named after Lorenzo de Tonti, a Neapolitan financier who proposed the idea in the 1650s. It gained popularity in Europe and North America in the 17th through 19th centuries as a form of life annuity or pension funding and occasionally as a public financing instrument. Its appeal was balanced by concerns about incentives to hasten deaths and by legal uncertainties.

Modern status: Many jurisdictions restrict or ban pure tontines due to regulatory and ethical concerns. Some variants survive in legal forms of survivorship or group life annuities, or are studied as potential tools for retirement funding. Contemporary discussion often focuses on designing tontine-like products that align incentives and are compliant with financial regulation.