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'Tontine' pension programs gain popularity as life expectancy rises

As more Japanese are predicted to live into their 90s and even into their 100s, tontine pensions -- which result in large losses for the covered person if they die at a relatively young age, but provides greater annuities the longer the covered person lives -- are attracting increasing attention.

    Tontines are a type of insurance based on a system devised by the 17th century Italian banker Lorenzo de Tonti. Keeping insurance payouts at the time of death low allows for large pension annuities while the client is alive.

    Nippon Life Insurance Co., also known as Nissay, launched its tontine pension scheme GranAge in April of last year. Those between the ages 50 and 87 are eligible for the tontine pension program, and they can choose between receiving pensions until their death or for 10 years. For example, if a 50-year-old man chooses to pay pension premiums until he turns 70 and receives pension annuities until his death, his premium would be 50,790 yen per month, and his payout would be 600,000 yen per year. If he lives past the age of 90, he would be receiving more money than he put in.

    According to Nissay, which has signed over 40,000 people to GranAge plans, many clients say they want to have some money set aside in case they live a long time, or that they don't want to burden their children with nursing care costs. More women than men have signed up for the tontine pension scheme, and about 40 percent of those joining the pension program are in their 50s. "Fifty has become the new halfway point in life, and more people than you'd think are preparing for a long 'second (post-retirement) life,'" a Nissay representative said.

    Nissay competitor Dai-ichi Life Insurance Co. also began selling their tontine pension program, Nagaiki Monogatari, in March of this year.

    Life expectancy in Japan has been rising every year, and is expected to reach 84.95 for men and 91.35 for women in the year 2065 -- longer than the current life expectancy by more than four years. The number of people 100 years old and over in 2050 is expected to be 10 times that of 2015, at approximately 700,000. The launch of tontine pensions by the country's top two insurers might spur a shift from life insurance to longevity insurance as the industry's top-selling product.

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