Annuities have become an extraordinarily popular alternative investment for retirement income planning in modern times, but they are not new. In fact, annuities can actually trace their origins back to Roman times.
Annuity contracts during the Emperor’s time were known as annua, or “annual stipends” in Latin. Back then, Roman citizens would make a one-time payment to the annua, in exchange for lifetime payments made once a year. Annuity comes from the Latin word annuus, meaning yearly.
During the 17th century, annuities were used as fundraising vehicles. In Europe, governments were constantly looking for revenue to pay for massive, on-going battles with neighboring countries. The governments would then create a “tontine,” promising to pay for an extended period of time if citizens would purchase shares today.
The United Kingdom, locked in many wars with France, started one of the first group annuity contracts called the State of Tontine of 1693. Participants in these early government annuities would purchase a share of the Tontine for ₤100 from the UK Government. In return, the owner of the share received an annuity during the lifetime of their nominated person (often a child). As each nominee died, the annuity for the remaining proprietors gradually became larger and larger. This growth and division of wealth would continue until there were no nominees left. Proprietors could assign their annuities to other parties by deed or will, or they passed on at death to the next of kin.