Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe changing social, financial and regulatory frameworks, such as an increasingly aging society, the current low interest rate environment, as well as the implementation of Solvency II, lead to the search for new product forms for private pension provision. In order to address the various issues, these product forms should reduce or avoid investment guarantees and risks stemming from longevity, still provide reliable insurance benefits and simultaneously take account of the increasing financial resources required for very high ages. In this context, we examine whether a historical concept of insurance, the tontine, entails enough innovative potential to extend and improve the prevailing privately funded pension solutions in a modern way. The tontine basically generates an age-increasing cash flow, which can help to match the increasing financing needs at old ages. However, the tontine generates volatile cash flows, so that -especially in the context of an aging society -the insurance character of the tontine cannot be guaranteed in every situation. We show that partial tontinization of retirement wealth can serve as a reliable supplement to existing pension products.
We derive optimal portfolio choice patterns in retirement (ages 66–105) for a constant relative risk aversion utility maximising investor facing risky capital market returns, stochastic mortality risk, and income-reducing health shocks. Beyond the usual stocks and bonds, the individual can invest his assets in tontines. Tontines are cost-efficient financial contracts providing age-increasing, but volatile cash flows, generated through the pooling of mortality without guarantees, which can help to match increasing financing needs at old ages. We find that a tontine invested in the risk-free asset dominates stock investments for older investors without a bequest motive. However, with a bequest motive, it is optimal to replace the tontine investment over time with traditional financial assets. Our results indicate that early in retirement, a tontine is only an attractive investment option, if the tontine funds are invested in a risky asset. In this case, they crowd out stocks and risk-free bonds in the optimal portfolios of younger investors. Over time, the average optimal portfolio weight of tontines decreases. Introducing systematic mortality risks noticeably reduces the peak allocation to tontines.
We investigate whether a historical pension concept, the tontine, yields enough innovative potential to extend and improve the prevailing privately funded pension solutions in a modern way. The tontine basically generates an age-increasing cash flow, which can help to match the increasing financing needs at old ages. In contrast to traditional pension products, however, the tontine generates volatile cash flows, which means that the insurance character of the tontine cannot be guaranteed in every situation. By employing Multi Cumulative Prospect Theory (MCPT) we answer the question to what extent tontines can be a complement to or a substitute for traditional annuities. We find that it is only optimal to invest in tontines for a certain range of initial wealth. In addition, we investigate in how far the tontine size, the volatility of individual liquidity needs and expected mortality rates contribute to the demand for tontines.
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