Growing old carries three distinct financial risks, and we have trained most of our attention on the first two. Mortality, the risk of dying, we insure against out of long habit. Morbidity, the risk that the later years arrive sick rather than well, we treat at considerable expense once it does, having funded little to head it off. Longevity, the risk of outliving your money, is the one very few people are focused on, even as it becomes the central problem of a long retirement. This is a piece about an instrument that could take on the last two at once.
Start with the morbidity, because that is where both the money and the misery concentrate. We have built an entire retirement-income industry around lifespan, the raw count of years, and left healthspan, the years you are well enough to enjoy them, to chance. In Australia the gap between the two runs to roughly twelve years of poor health at the end of a long life, close to the worst in the developed world by one recent count, and it is the most expensive dozen years most of us will ever cost the system.
The deeper trouble is that few in the arrangement have much reason to close it. Private health insurers sell an annual product to members who shop on price each year, so they rarely hold anyone long enough to gain from heading off a disease a decade away. Governments collect the savings of a healthier old age a budget cycle or three after the minister who paid for them has moved on. The one institution that does stay with you for thirty or forty years, your super fund, makes its money managing the balance while you age into expensive dependency, and spends little keeping you out of it.
Which is why it is worth dusting off one of finance's stranger antiques: the tontine. Named after Lorenzo de Tonti, who pitched it to Louis XIV's France in the 1650s, a tontine is a pool of members who share the returns on their pooled savings, and when one of them dies their stake stays in the pool and lifts the income of everyone still alive. One early French tontine made its final payout in 1726 to a widow who had put in 300 livres and drew out 73,000. The structure helped build Richmond Bridge and bankrolled the coffee house that became the New York Stock Exchange, and it has handed murder plots to Agatha Christie and the Simpsons ever since (the appeal of bumping off the last few members is as old as patricide). You may be getting a flavour of why the word has a branding problem.
The tontine, though, was never really about death. It is about who owns the pool, and about sharing the one risk no individual can diversify away: not dying too soon, but outliving your money. That is precisely the risk Australia has in abundance, as the largest cohort in its history retires into a superannuation system worth some $4 trillion that still, for the most part, hands people a lump sum and wishes them luck. The modern, regulated version is already here and barely remarked upon: QSuper's Lifetime Pension, APRA-approved since 2021, and the 2022 Retirement Income Covenant that now obliges funds to offer an income for life. The idea has been earning mainstream respectability too: the Financial Times devoted a 2021 feature to the tontine's revival as a serious answer to the global pensions shortfall. Dean McClelland's Tontine Trust (tontine.com), whom we interviewed on Foresight a few years ago, has been building the tech-enabled version for longer still, and is now working to launch regulated tontine pensions in the United States and the United Kingdom.
Here is the move I think is missing, and it needs stating honestly, because a tontine on its own does not care whether you are well. The pooling solves longevity and only longevity; it shares the risk of a long life without taking much interest in the quality of it. So attach something to it. Ring-fence a slice of the pool's investment returns, before any of it is paid out as income, as a healthspan dividend, and spend it on the unglamorous, well-evidenced things that keep people well: screening, strength and balance, a GP who knows them, and above all company. The members give up a little income now for more of the good years that were the whole reason to want the income in the first place. Whether a fund would ever choose that, rather than simply maximise the headline payout, turns entirely on who owns it, which is the next question.
The obvious objection is the one Agatha Christie already wrote: a pool that pays the living from the departed is a macabre thing to join. Two design choices answer it.
- Anonymise the pool. No member ever benefits from a named person's death; a credit is a statistical event spread across thousands, the same actuarial arithmetic that underwrites every annuity, made legible and shared. You are insured against outliving your money, not wagering on your neighbour.
- Compete on healthy years, not money. Members join in self-chosen pods, a few friends, a club, a workplace, and the only league table anyone sees ranks healthy years rather than survival. The money does its pooling underneath, out of sight; the thing you actually play is your own healthspan, which is the behaviour the dividend is paying for anyway.
Then there is the question of who owns it, which is where the idea gets most interesting. My strong instinct is that this should not be a product a fund sells you, but a mutual you own: a member-owned co-operative, which is to say a friendly society reborn. Friendly societies are the forgotten ancestors here, the mutual-aid pools that carried sickness and old age for working people for the better part of a century before the welfare state, and whose descendants (Australian Unity among them) are still trading. Owned as a co-operative, the gain is not skimmed off by a shareholder; the members keep it, and can rationally choose to spend the pool's returns on their own good years in a way a profit-maximising fund, for whom a longer life is partly a cost, never quite can. Bundle in care cover and the logic only tightens, because every year of independence the dividend buys is a year of the mutual's single largest liability it avoids.
I spoke with Andrew Scott, whose work treats healthy ageing as the economy's great undervalued asset rather than its looming cost, and he was very interested in the tontine idea and open to a discussion.
Whether it is an incumbent super fund that moves first or a new mutual built from the ground up, I suspect the healthspan tontine is one of those ideas that will look obvious about five minutes after someone finally builds it.