【Tax-Deductible Annuity Comparison】Which Longevity Annuity Guarantees Returns Up to Age 100 with the Best Returns?

The risk of longevity should not be underestimated. A survey indicates that Hong Kong residents underestimate their lifespan by 10 years, with nearly half lacking sufficient funds to support their retirement. What tools are available to hedge against longevity risk and provide policyholders with lifelong annuity income? Many are aware that Qualifying Deferred Annuity Policies (QDAP) can be used for retirement planning, and some products can even address longevity risk. So, how should policyholders make their choice? Most QDAPs in the market offer an income period of 20 years (e.g., from age 65 to 84), and there are not many QDAPs that hedge against longevity risk. This time, 10Life compares four QDAPs with income periods extending to age 100, to see which one offers the highest returns.

The annuity income period for the four products starts at age 60 and continues until at least age 100, helping to hedge against longevity risk. Among them, the longest income periods are offered by BOC Life and China Pacific Insurance, with payouts lasting until lifetime and age 120, respectively. This means that even if the policyholder lives to 120, they can continue to receive annuity income. Therefore, policyholders can choose the relevant product based on their predicted lifespan and needs.

At age 100 (see table below), the guaranteed total income from the four products ranges from 145% to 209% of the total premiums paid. Additionally, as the name suggests, tax-deductible annuities allow for tax deductions. Based on the current highest tax bracket in Hong Kong at 17%, an individual can save up to HKD 10,200 in taxes per year. When factoring in the tax deduction effect, the guaranteed total income from Sun Life further increases, reaching up to 233% of the total premiums paid.

By the way, the guaranteed Internal Rate of Return (IRR) of the product increases with the age of the insured. Taking the BOC Life product as an example, its guaranteed IRR is 2% at age 75, and it rises to 2.6% at age 105.

When comparing tax-deductible annuities that hedge against longevity risk, besides total income and returns, it is worth paying attention to the early surrender protection of longevity annuities. This can help in case of unexpected financial needs that force an early surrender. For surrenders after 10 years of policy inception, the guaranteed cash value of four products ranges from 89.3% to 100% of the premiums paid. In the unfortunate event of death within 10 years of policy inception, the guaranteed death benefit ranges from 100.5% to 108% of the premiums paid, ensuring that policyholders do not incur a loss due to early death.

In traditional Chinese society, living to a ripe old age—often expressed as “長命百歲”—is generally regarded as a blessing. It allows individuals to enjoy the fruits of a lifetime of hard work, pursue personal interests during their later years, spend time with family and friends, and witness the changes in the world over an extended period.

However, owing to factors such as inflation and the rising cost of medical care, greater longevity can sometimes present a financial risk, potentially catching people unprepared.

In fact, according to data from the Census and Statistics Department, male life expectancy at birth rose from 75.2 years in 1991 to 80.7 years in 2022, while for females it increased from 80.7 years to 86.8 years over the same period (see chart below).

So how can readers assess their own longevity risk? Nowadays, various online tools are available to assist with this. For example, the Hong Kong Mortgage Corporation Annuity's longevity calculator (commonly known in Chinese as “壽比南山”) enables users to input their age and gender, after which the system estimates their expected lifespan.

圖片來源：政府統計處

When selecting a tax-deductible annuity, it is essential first to clarify your primary objective—whether it is for savings, retirement planning, or hedging against longevity risk—and then choose an appropriate premium amount, payment period, and annuity income level based on your lifestyle and financial circumstances.

If you would like further advice on selecting a tax-deductible annuity, please feel free to call or WhatsApp us at 3705 1599 to consult one of our 10Life insurance advisers.

Notes:

1. This article has been compiled by 10Life using market information gathered from various sources. It is provided for general reference only and does not take into account any individual's specific needs or suitability. It should not be regarded as a sales recommendation. Before purchasing any policy, you should discuss your requirements with a licensed insurance adviser and rely on the information provided by the insurance company.
2. The premium information above is updated as at 25 January 2024 and does not include the premium levy charged by the Insurance Authority.
3. Last updated: 25 January 2024.

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.