Ask an Australian what a tontine is and you are more likely to hear about pillows than you are to hear about investment options.
However, that may change soon.
A tontine is a traditional investment linked to a person, which provides an income for as long as that person is alive, and originated as plans for governments to raise capital in the 17th century and became relatively widespread in the 18th and 19th centuries.
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Traditional tontines enable subscribers to share the risk of living a long life by combining features of a group annuity with a kind of mortality lottery.
Each subscriber to a tontine pays a sum into a trust and thereafter receives a periodical payout. As members die, the value of each continuing payout increases until the scheme is wound up on the death of the final member.
These schemes, which are still quite common in France, have not really been a part of the Australian retirement landscape, but that changed earlier this year when QSuper announced it was introducing a scheme offering retirement income guaranteed for life, which has some of the same features.
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How does the QSuper product work?
The new QSuper Lifetime Pension pools members’ contributions into a single fund invested in the financial markets and then makes fortnightly income payments for life.
The income is then adjusted once a year based upon the over or under performance of the investments as well as mortality rates. This means that while payments are expected to increase over time, they are not guaranteed to do so.
The product, which is an Australian first, is only available to people aged 60–80 and promises to provide tax-free fortnightly payments for the rest of your life.
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QSuper’s Jason Murray said the Lifetime Pension product aimed to provide greater confidence for members that their retirement savings would be there for their whole retirement.
“Everyone at QSuper is very aware that our members put a great deal of trust in QSuper to help them achieve the retirement that they deserve,” Mr Murray said.
“When I reflect about our role in protecting members, a significant additional risk I think about is the risk that our members may run out of money during retirement or, as we quite often see, live quite frugally in retirement for fear that they will consume all of their retirement savings prematurely,” he said.
Some of the other benefits of the scheme are that only 60 per cent of the lifetime pension is counted in asset and income tests for the Age Pension, which could increase benefits for those members who are eligible.
Also, if you die before receiving income payments equal to your original purchase price, the difference is payable as a death benefit to your beneficiaries or estate.
There is also a cooling off period of six months, from when you purchase the product, to decide if it is right for you. After that cooling-off period, it will be considered a permanent purchase.
Does the idea of a guaranteed lifetime income product sound attractive to you? Would you appreciate the peace of mind afforded by knowing you had a guaranteed income for the rest of your life? Why not share your thoughts in the comments section below?
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