Let’s not get caught in the web of financial engineering.

I’ve got an invitation from an American Venture Capitalist keen to discuss the “securitisation of tontines”. I am not interested in such discussions, I am sure there are people who find monetising the dead a good thing to do, I’m not one of them.

The web’s full of “scholarly articles” advising us on how we can make money from selling dead souls. It was a practice written at length about in 19th century Russia – indeed Gogol wrote a literary masterpiece around the money to be made from peasants whose deaths had gone unrecorded and who could still generate revenue to unscrupulous landlords.

Securitising the life and death of people who come together to insure themselves against their living too long is however a quite unnecessary endeavour, and a distasteful one at that.

You don’t have to go far down the rabbit-hole to find yourself in a murky world that could be part of the dark web. For example

CATM bonds, longevity bonds, mortality forwards and futures, and mortality swaps). Pricing methods and real examples are given. Hypothetical calculations concerning the pricing of potential mortality forwards that correspond to the evolution of longevity in the Czech Republic are presented

I know of these things and have seen them applied to help large DB schemes to become self-sufficient, immunising employers of risks they no longer want to take. But there is a now a move to use these fancy products in retail markets where there is no need for them.

If only the finance industry could focus on the problem in hand, rather than finding derivatives of the problem which can be marketed as solutions through other intermediaries.

Instead of this financial engineering, what is needed right now is solid old mutual insurance where assets were pooled by people with a common aim – to protect each other. We don’t need financial engineering so much as social engineering.

I have heard many experts say that we could use the financial instrument mentioned above to offset longevity risk within pooled annuity funds. It is in a way good news to hear from complete strangers, offers to help create such instruments, it suggests that the market is waking up to an opportunity.

But it would be so much better for the market, at this early point, to sit back and think of what has happened to other mutual endeavours when they allowed their risks to be securitised and sold back to them as CDIs and such exotica. These risks are trade able for a time , but the contracts quickly become so obscure that they can easily turn to dust, as so many of the financial instruments did in 2008.

And why did so many of those contracts come into being? Because the principles of lending that had worked well for centuries were swapped for high-stake commoditisation of risk. The mortgage being traded was not on the house of the person you knew at the end of your street, it was on some proxy that ended up at the doorstep of a worthless deal made in another country that made money to the salesman and no-one else. It was as if we were trading the debt of dead souls.

One of the things that I love about pension plans is that they are the plans of real people with real problems. There are solutions that work or don’t work because they meet ordinary people’s needs and are explainable. People may choose not to be in a longevity pool as they’d rather take their chances and that’s understandable. But most people – assuming trust between them and the pool managers – buy the principle of pooling their money with others to get a common pension paid to all, underwritten by all.

Let’s not lose the simplicity of that common bond to financial engineering. Say “NO” to the securitisation of tontines before that unnecessary practice gets a grip. Life and death are difficult enough!