Fees in Tontines

The paper studies the incorporation of an explicit fee in modern tontine schemes and investigates how it affects the attractiveness of these products, both from the insurer’s and tontine participants’ viewpoint. We consider a single initial fee, and a variable fee, where the latter can be designed to meet different liquidity needs and risk aversions. We find that the “indifference fee”, the fee for the tontine making the participants indifferent between the tontine and an annuity, gets extremely close to that of the annuity. It gives insurers a large spectrum of fees to be charged for the tontine. Tontine providers and participants can agree on a fee level which makes tontines an attractive alternative to tontine participants, compared to annuities, and at the same time, insurers can still retain a large part of the fee as a profit, given the low risk contained in a tontine