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Win or bust!

It may be an issue that has steadily loomed over the horizon for some time, but fund managers are more and more looking to address the problem of catering financially for life longevity.

Gone are the days where you simply held your age in bonds, as investors are living some 20, 25 or 30 years after they retire, many of whom are daunted by the fact that they could end up potless as they failed to account for their on-going survival.

A number of firms have set their stalls out to tackle this issue through the multi-asset route by using a number of active, balanced, managed and cautious portfolios to form a DC pension scheme solution for investors to travel down the route to retirement.

Fidelity’s own lifestyle portfolios stick out in particular, with an initial series of seven funds which match up to a client’s possible retirement date before being ploughed into an income fund at retirement.

All of these are packaged solutions that hold water, but do they have the whole answer to the equation? Probably not for those who live into their eighties and nineties.

Cue Schroder’s chief investment officer Alan Brown’s call for the possible reintroduction of a civilised version of tontines.

What an interesting idea. Although they have had something of a sordid past they do in their own strange way offer the perfect solution for those who have grown fond of their free bus pass.

Tontines have something of a colourful past going right back to their origins in the 17th century, with both France and Italy laying claim to being their birthplace.

In short, a tontine is a mixture of a group annuity, group life insurance and a lottery. Each investor pays money into the trust and receives dividends over certain periods with the last surviving member scooping the remaining assets.

In a way it’s the ultimate Big Brother game, where survival means success. But as you’d expect controversy followed in tow as investors began to perish in strange circumstances, leading to a ban in both the US and the UK.

Though Brown does not want a return to those days, he feels that having a group of 65 year-olds pay lump sums into a tontine and then allowing those who have survived at 85 to recoup the returns could be the answer to all some of the current retirement problems facing the nation.

Hargreaves Lansdown head of pensions research Tom McPhail says: “As a concept the idea is fantastic and I’m all for innovation. It would just be a case of ensuring that strict regulation comes from the very top and stays stringent.”

I would agree, but whether the Government has the gusto to reinstate something that has the potential to go wrong in so many ways is something I would be very surprised to see.

The innovation is there, but it would be a case of the framework needing to be right from the top down. If it wasn’t heads would roll, in more ways than one.


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