[rocqua]

The difference is what happens when returns aren't as expected.

In a pension, this can only be reflected in the payout up to a point. As such, much of the effect of mis-predicted returns is borne by current pension premiums and the captial buffer of the pension. Same goes for withdrawals, if either more or fewer people survive to benefit from a pension that isn't directly borne by the other pensioners.

With a tontine, the payout is directely linked to total number of beneficiaries and total returns. Any variation is borne directly by the benificiaries. This, means there is essentially no risk in administrating a tontine, as your capital buffer can't 'fall short'. Make the tontine big enough, and the risk averages out.

After amtortizing this risk, a trend-change (e.g. aging population or economic depression) is borne by the administrator in case of a pension and borne by the beneficiaries in case of a tontine.