When it comes to pensions and retirement, we have a clear question of pension adequacy in much of the world as people live longer and many individuals have insufficient savings for a comfortable retirement. Bitcoin solves this – in part – by offering a form of savings that cannot deteriorate and should hold its value over the long term. Lowering our collective time preference as a society wouldn’t hurt either, as we would prioritize our later years more than we currently do.
However, it is sometimes noted that Bitcoin does not solve all the problems in the world, only half of them, and there is one big aspect that Bitcoin cannot help with in terms of retirement planning. None of us know how long we will live, and if we live “too long” we risk running out of money in old age. This is a problem that the pension and insurance world defines as “longevity risk”.
I wrote an article for Bitcoin Magazine in 2022 about one solution, which can be seen here. In short, it proposed a simple annuity product priced in Bitcoin that would pay policyholders a Bitcoin income for life, allowing participants to pool their lifetime risk in retirement.
Notably, a product is now coming to market that allows bitcoiners to pool their lifetime risk in a Bitcoin-based trust and receive an income for life, but with more transparency and probably a higher income than an annuity. Enter Bitcoin Tontine by Tontine Trust.
Let’s review the basics.
What is a Tontine and how does it work?
A Tontine is traditionally known as an investment linked to a living person that operates to pay them an income for as long as they live. Each participant pays into their own separate trust. Each trust designates a Tontine class as the beneficiary of their trust upon their death. The Tontine class consists of a large number of others of the same age and sex. A varying income is then paid to each member from their own account. When a Tontine class member dies, the entire value remaining in their trust is distributed proportionately to the individual trust accounts of all remaining class members, helping to increase their retirement income over time. This process continues until the penultimate member dies.
The income paid is continuously updated and calculated to ensure a lifetime income for all participants based on the following factors –
a) the life expectancy of the members, which is largely based on age/gender
b) the current value of their mutual fund
c) the expected annual return of their fund
This method means that income can sometimes go down as well as up, but it is this flexibility which in turn mathematically guarantees that members will never run out of income in retirement. The Tontine Trust covers the costs of running the tontine via a fixed annual management fee of 1% charged to each trust account.
How does this differ from an annuity?
An annuity guarantees a fixed income (or income with defined increases, eg 3% per year) for life. If members live far longer than expected, it will fall to the insurer to absorb this cost (and conversely, they will profit if members die young). Because of this requirement, insurance companies have strict requirements to hold excess capital to cover all eventualities and tend to price their annuities based on the yield on fixed income government bonds. Their profits are opaque and are realized over many years.
In contrast, the tontines offered by the Tontine Trust operate in an extremely transparent and intuitive manner and, by their very nature, can offer a range of trustee-approved asset classes for the underlying investments. Furthermore, members can change their investment strategy over time. In addition to a pure allocation to Bitcoin, they offer investment strategies for different risk appetites and circumstances, including a “fat” fund (mix of Bitcoin and gold), index funds and money market funds.
The higher return on underlying investments combined with the mechanisms of a tontine should ensure that participants enjoy a higher income throughout retirement as a result, compared to an annuity. The key trade-off is that paid income can fall as well as rise due to investment returns.
A comparison of tontines and fixed annuities. Source: Tontine Trust website
What are the disadvantages of Tontines?
In a Tontine, members’ lifetimes will directly affect payouts to the rest of the group (rather than in an annuity, where how long members live will affect an insurance company’s profits). Because of this, the biggest risk for tontine administrators is probably the risk of fraud, and relatives of members pretending to be still alive after their death (of course, insurance companies also bear this risk).
Tontine Trust has come up with a new technological way to combat the potential for fraud, by patenting a new proof of life method where members show they are still alive via the Tontine Trust app to validate payments to them. In addition, as each member has their own separate account, Tontine Trust is able to follow a proof of reserve system using blockchain to help with transparency and reflect all payments and fees in and out of member accounts.
A public relations campaign may be required to educate the public about this new type of Tontine product. The Tontines have a rich and varied history dating back to the 17th century. Where shrouded in fiction, Tontines often involve cloak and dagger stories of private Tontine arrangements, often where the last surviving member of a small group will inherit the lot. In reality, the modern Tontine Basins will operate on a large scale and with anonymity.
Grampa Simpson and Monty Burns – the last two survivors of a Tontine who have completely inherited stolen artwork in The Simpsons episode Raging Abe Simpson and His Grumbling Grandson in “The Curse of the Flying Hellfish” – watch clip here
In addition, Tontines was restricted from selling in the United States certain life insurance policies following the Armstrong investigation in 1905, as the terms of these policies led to certain malpractices by many insurance companies of the time. There were some questionable terms for consumers with these products, such as a breach of the no single regular payment policy and high commission rates payable to sales agents. These problems as summarized in the paper here were specific to the products and practices of the time, rather than a fundamental problem with a pensioner Tontine as stated above.
How does Tontines feel about the current regulation?
Tontines are very long-term products that are managed in the best interests of members by trustees and as such are similar to pensions and other trustees. They do not fall under insurance schemes as the maintenance of a separate capital reserve is not necessary to insulate against members living for a long time. Crucially, there has been recent development in favor of Tontines being once again launched as a product.
In 2022, the OECD (Organisation for Economic Co-operation and Development) published a legal instrument recommending that defined contribution pension schemes (which are now the norm in most countries) ensure protection against longevity risk in retirement. This could be achieved by providing lifetime income, which “may be provided by annuities with guaranteed payments or by non-guaranteed schemes where the risk of longevity is pooled among participants”. They note that the choice will depend on the necessary balance between the cost of guarantees (ie, annuities provide a guarantee of an income but may have a poorer value) and the stability of retirement income (ie, schemes such as tontines can sometimes see income fall over time as a result of negative investment returns).
In addition, Donald Trump recently signed an executive order in August 2025 that seeks to democratize access to alternative assets, which not only outlines access to include “holdings in actively managed investment vehicles that invest in digital assets,” but also to “lifetime income investment strategies, including longevity risk-sharing pools.” This essentially paves the way for Tontines as a retirement option and for the underlying investment to be Bitcoin.
It is undoubtedly the social security system of the future. National Tontines backed by Bitcoin could quickly become the safest way for governments to ensure their populations have an inflation-proof income to care for them in old age. The “pay as you go” model of state pensions as an employee in many countries will continue to come under pressure due to demographic changes. Although a shift to a funded model is large, it solves intergenerational equity and comes at no cost to the state.
Overview
17 years after the original Bitcoin whitepaper, we are seeing a natural retirement option launched for bitcoiners – a longevity risk-sharing pool with the benefits of bitcoin returns, allowing bitcoiners to mathematically guarantee an income for life. This appears to provide a much higher income than an annuity can offer. A choice faced by those seeking lifelong retirement income will be from a) an annuity priced according to returns on fixed income government debt, and b) a tontine powered by Bitcoin returns.
Over time, the market will decide.
This is a guest post by BitcoinActuary. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine. Nothing contained in this article should be construed as financial advice. The author owns shares in the Tontine Trust.