Distinguished Professor Emeritus Peter Forsyth from the Cheriton School of Computer Science, Professor Emeritus Ken Vetzal from the School of Accounting and Finance, and Graham Westmacott, a portfolio manager at Richardson Wealth Limited, have been awarded the 2024 Chris Daykin Prize by the International Actuarial Association.
Presented by the Association’s Pension, Benefits, and Social Security Section, the Chris Daykin Prize recognizes outstanding research in pensions. The researchers received the award for their paper, Optimal Performance of a Tontine Overlay Subject to Withdrawal Constraints, published in the ASTIN Bulletin: The Journal of the IAA. The prize includes a $2,500 cash award and an invitation to present their work at the next PBSS colloquium.
Tontines are investment arrangements where participants contribute to a common fund, with payouts made to surviving members over time.
“Based on almost 100 years of financial data, the paper by Forsyth, Vetzal and Westmacott showed that modern tontines can be an effective way to reduce longevity risk and increase payments to the participants,” notes the International Actuarial Association in its description of the research.
Peter Forsyth is a Distinguished Professor Emeritus at the Cheriton School of Computer Science. After completing a PhD in 1979, he worked as a senior simulation scientist at the Computer Modelling Group in Calgary, where he developed petroleum reservoir analytics. He later became the founding president of Dynamic Reservoir Systems, a software start-up specializing in reservoir simulation.
In 1987, he joined Waterloo as an Associate Professor in what was then the Department of Computer Science until his retirement in 2016. Over his career, he made many significant and lasting contributions to computational finance, particularly the development of numerical methods for option pricing, portfolio optimization, and risk management.
As of March 2025, his publications have been cited collectively more than 11,500 times with a h-index of 61 according to Google Scholar. Distinguished Professor Emeritus Forsyth continues to conduct research, in particular on advancing computational methods in finance.
About this award-winning research
As defined benefit pension plans continue to decline, individuals increasingly rely on defined contribution plans, requiring them to carefully manage withdrawals to ensure their savings last throughout retirement. The authors explore the potential of a tontine overlay, a mechanism that pools longevity risk among participants, as a way to improve retirement income security.
A tontine is a financial arrangement in which a group of participants contribute to a common fund, with payouts made to surviving members as others pass away. This pooling mechanism allows funds to be redistributed. However, unlike annuities, which provide guaranteed income but are underwritten by insurance companies, tontines operate without external guarantees and distribute benefits directly among members, making them a cost-effective alternative for retirement planning.
The study employs advanced mathematical modelling and nearly a century of market data to determine optimal withdrawal and investment strategies for retirees participating in a tontine. By applying dynamic programming and solving a partial integro differential equation using Fourier methods, the researchers identified strategies that balance risk and reward. Their findings show that incorporating a tontine overlay into a retiree’s financial strategy increases expected total withdrawals substantially while reducing the risk of outliving one’s savings.
One of the key conclusions is that retirees using a tontine overlay have better financial outcomes compared with those following conventional withdrawal strategies. Tontines redistribute funds among surviving members, meaning those who live longer benefit from contributions of those who pass away. While this structure requires tontine participants to give up their remaining investments after death, the study demonstrates that the increased lifetime withdrawals outweigh this trade-off for retirees.
Another important insight from the research is the importance of optimal control in determining withdrawal amounts and asset allocations. Their findings suggest that an optimal withdrawal strategy is a bang-bang control, where retirees withdraw funds conservatively at first before increasing withdrawals once certain financial thresholds are met.
Notably, a tontine overlay does not prevent passing wealth to future generations. Retirees who do not require the full benefit of survivorship credits for their retirement expenses can provide financial gifts while alive.
To learn more about the research on which this article is based, please see Peter A. Forsyth, Kenneth R. Vetzal and Graham Westmacott. Optimal Performance of a Tontine Overlay Subject to Withdrawal Constraints. ASTIN Bulletin: The Journal of the IAA. 2024;54(1):94–128.