【2026 Comprehensive Guide to Tax‑Deductible Annuities】Analysis of tax‑deductible annuity products (10‑year annuity term) — Find out how annuities save tax and which providers offer the highest returns!

In recent years the government has run budget deficits and the cap on tax rebates has continued to shrink, effectively increasing taxpayers’ tax burden. Many people are therefore seeking ways to reduce their tax liabilities. In fact, in addition to Mandatory Provident Fund contributions and Voluntary Health Insurance, qualifying deferred annuity policies (QDAP, tax-deductible annuities, also known as tax-rebate annuities) are also tax-deductible. How exactly can purchasing an annuity save tax? How should one choose an annuity plan? Is there a limit on tax-deductible annuities? Read this article to learn more about tax-deductible annuities and to help you make more informed financial decisions. Some insurers are offering increased premium discounts in the fourth quarter; if you are interested in taking out a policy, now is the time to act. 

Deferred annuities comprise three phases: the contribution period, the accumulation period and the payout period. The policyholder pays premiums over a specified period; during the accumulation period the insurer invests to grow the fund; and at the payout period the policyholder receives regular annuity payments.

The current tax-deduction cap for tax-deductible annuities is HK$60,000, which means that if a policyholder takes out a policy and pays HK$60,000 in premiums before 31 March each year they will qualify for that tax year’s deduction. At a Salaries Tax rate of 17%, a policyholder can save HK$10,200 a year.

For this analysis 10Life examined tax-deductible annuities with a 10-year annuity term on the market, using the case of a policyholder aged 45 with benefit commencement ages of 50 and 55. The review covered products from 友邦、中銀人壽、恒生保險、立橋人壽、中國太平洋人壽保險、富衛、Sun Life永明、AXA安盛、萬通及中國太平 to identify which tax-deductible annuity offers the highest returns.

Discounts + tax relief + returns: some tax-deductible annuities guarantee IRRs of up to 6%

Accumulation periods for annuity products vary. If a 45-year-old pays premiums for five years, annuity payments can begin as early as age 50. This comparison focuses on 10-year annuity-term tax-deductible annuities, with benefit commencement at age 50 or 55. In terms of guaranteed internal rate of return (IRR), after accounting for discounts and a 17% tax bracket, 中銀人壽’s maturity-guaranteed IRR is the highest at 6%; the product is 100% fully guaranteed.

Purchasing a tax-deductible annuity can save up to HK$10,200 in tax per year, effectively increasing the product's internal rate of return. However, if the policyholder has no tax liability, the returns from the product alone differ markedly. Under the same assumptions, and considering only the discount currently offered, Bank of China Life's guaranteed IRR is 3.6% in the absence of the tax-deduction benefit. This highlights the importance of the tax relief; it is little wonder the market refers to QDAP as a powerful tax-saving tool.

When purchasing tax-deductible annuities, you should understand your reasons for buying them — for example, saving, creating your own retirement income, or hedging longevity risk — and then select a suitable product according to your personal needs and financial circumstances. If you would like to learn more and choose the tax-deductible annuity product that best suits you, please feel free與10Life的保險顧問聯絡.

Many readers are concerned about how much tax they can save with tax-deductible annuities (also known as tax-rebate annuities). Table 3 uses examples to illustrate how an individual and a couple can reduce their tax payable by 44% and 50% respectively through purchasing a tax-deductible annuity. In addition, policyholders can use the simple Tax Computation tool provided by the Inland Revenue Department to work out how much tax they could save.

Taxpayers only need to state the total amount of eligible deferred annuity premiums paid for the year on the tax return (BIR60); there is no need to submit any supporting documents. However, taxpayers must retain records of premium payments and the annual policy summary issued by the insurer for six years, as these may be requested by the Inland Revenue Department for inspection at any time.

Want to learn more about tax‑deductible annuity products? Let’s take a look at how tax‑deductible annuities operate.

What is an annuity?

Among the "three tax‑deduction treasures", tax‑deductible annuity products are particularly complex. An annuity is essentially a long‑term insurance product: the policyholder hands funds (either as a lump sum or by instalments) to an insurer, and after a specified term or upon reaching a specified age, the insurer makes regular, stable payments, allowing the insured to use retirement savings in a disciplined way to manage the financial risks of longevity. Annuity recipients can receive periodic cash payments similar to a salary, which is why annuities are colloquially referred to as a means of generating a steady income.²

Types of annuities: Deferred annuities vs Immediate annuities

Hong Kong is one of the longest‑living populations in the world¹; average life expectancy for both men and women exceeds 80 years¹, and many people are beginning to worry that they may not have sufficient retirement savings for the latter part of life. In response, many insurers have launched annuity products to meet market demand. The annuity products available in the market are mainly divided into immediate annuities and deferred annuities. With the former, a lump‑sum payment allows annuity payments to begin immediately, making them suitable for those approaching or already at retirement; the latter can be paid by instalments, allowing the funds to accumulate and earn returns during the accumulation period and be drawn down at a specified date, making them suitable for working individuals. It is important to note that not all deferred annuity premiums are tax‑deductible — only Qualifying Deferred Annuity Products (QDAPs) are eligible for tax deductions³. Because QDAPs offer tax‑deduction features and annuity payments may commence as early as age 50 rather than only after retirement, some people regard them as a financial tool for achieving mid‑term savings goals. For younger individuals who wish to use the tax‑deduction and savings features of QDAPs, priority should be given to analysing the product’s early surrender value and guaranteed returns.

Are there term limits for tax‑deductible annuities? Understanding the conditions for tax‑deductible annuities

Under the Insurance Authority’s guidelines, Qualifying Deferred Annuity Products (QDAPs) must meet the following conditions³：
•    A total premium of at least HK$180,000, with a minimum contribution period of five years
•    An annuity payment period of at least 10 years
•    The annuitant must be aged 50 or above to start receiving annuity payments
•    The product’s internal rate of return must be disclosed for customers to assess and compare
•    Clearly state the guaranteed and non‑guaranteed amounts of the annuity
•    Premiums for any riders or additional benefits (e.g. critical illness cover, hospital cash, etc.) must be clearly separated from the premiums of the QDAP 

Because QDAPs offer tax‑deduction benefits, they have become one of the insurance products frequently recommended to clients by bank RMs (client relationship managers) and insurance agents.

Annuities are long-term investment and financial planning products, and policyholders need to choose more carefully to avoid future regret. The following points have been summarised for readers to note.

• Income period – Annuity products typically specify the period over which payments are made; policyholders should understand when they will need annuity income.
• Internal rate of return（IRR）– The internal rate of return can be used as an indicator of performance, calculating the annualised return of the entire cash flow.
• Proportion of “guaranteed returns” and “non‑guaranteed returns” – If an annuity product is intended for retirement income, many people seeking “stable cash flows” will consider the product’s “guaranteed returns”.
• Early surrender cash value – If a policyholder surrenders the policy in its early years, they may forfeit a large portion of their contributions, so policyholders should ensure they have sufficient liquid funds for emergencies to avoid early surrender.
• Early death benefit - If the policyholder unfortunately dies before reaching the break-even point, the beneficiary may receive a death benefit, either as a lump-sum payment or by continuing to receive the remaining annuity payments.

This English version of this article has been generated by machine translation powered by AI. It is provided solely for reference purposes. In the event of any discrepancy or inconsistency between this translation and the original Chinese version, the Chinese version shall prevail.