The crucial 20 years after retirement — comparing multinational insurers’ tax-deductible annuities: guaranteed returns differ by 28%

false

Hong Kong people's life expectancy is increasing.

According to Census and Statistics Department data, in 2023 the average life expectancy in Hong Kong was 82 years for males and 88 years for females. If a typical person retires at 65, whether there is sufficient cash flow for the following 20 years is critical to maintaining quality of life.

Besides tax benefits, purchasing a tax-deductible annuity mainly allows the policyholder to make contributions while employed. During that period, the insurer invests to grow the amount, and when the policyholder reaches the specified age they can begin receiving annuity payments.

For retirement planning purposes, we assume a 45-year-old male policyholder, a 10-year contribution period, annual contributions of USD 7,800, total contributions of USD 78,000; annuity payments begin at age 65 with an income period of 20 years until age 85. We then compare tax-deductible annuities offered by large multinational insurers, including Sun Life 永明豐碩 Deferred Annuity, Manulife 宏利歲稅樂 Deferred Annuity and AXA 安盛「賞精彩」 Deferred Annuity.

Comparing insurance products is only meaningful under the same terms. If other large multinational insurers’ tax-deductible annuities do not have the same design—for example, the tax-deductible annuities from AIA and Prudential—we have not included them in this comparison.

Table 1: Contributions starting at age 45 for 10 years, total contributions USD 78,000, income period from age 65 to 85

Comparison of guaranteed and expected income for tax-deductible annuities

10Life Comparison of Tax-Deductible Annuities	Guaranteed Income (USD)				Expected Income (USD)
10Life Comparison of Tax-Deductible Annuities	Ages 65–74	Ages 75–84	Total Income	Total Income as % of Premiums Paid	Ages 65–74	Ages 75–84	Total Income	Total Income as % of Premiums Paid
Sun Life 永明豐碩 Deferred Annuity Plan	71,880	71,880	143,760	184%	93,921	104,746	198,667	254%
Manulife 宏利歲稅樂 Deferred Annuity	59,640	59,640	119,280	153%	109,820	109,820	219,640	281%
AXA 安盛「賞精彩」 Deferred Annuity Plan	56,160	56,160	112,320	144%	112,320	112,320	224,640	288%
Note: 1. The above premium information is updated to October 10, 2024, and does not include the premium levy charged by the Insurance Authority. 2. Ranked by insurers' total guaranteed income (from high to low).

Guaranteed annuity income should not be overlooked — the difference between the highest and lowest is 28%

For many people, seeking stability in retirement and avoiding budget shortfalls, the guaranteed income portion of tax-deductible annuities becomes important.

Among tax-deductible annuities with an income period from age 65 to 85 (see Table 1), Sun Life's 20-year total guaranteed income is about US$144,000, accounting for 184% of the premiums paid, the highest among the three products; following closely are Manulife (US$119,000) and AXA (US$112,000), with a 28% difference between the highest and lowest (about US$32,000).

Tax-deductible annuities also include non-guaranteed income, which together with guaranteed returns form the "expected income", with AXA being higher. However, distributions of the non-guaranteed portion are affected by multiple factors, including the insurer's investment performance, dividend policy, economic conditions, etc., so the actual amounts are hard to predict.

Table 2: Contributions starting at age 45 for 10 years, total contributions of US$78,000, income period from age 65 to 85

Comparison of internal rates of return and tax effects for tax-deductible annuities over a 20-year income period

10Life comparison of tax-deductible annuities	Guaranteed IRR at maturity		Total guaranteed income as % of total premiums after tax deduction	Expected IRR at maturity		Total expected income as % of total premiums after tax deduction
10Life comparison of tax-deductible annuities	Excluding tax deduction	Including tax deduction (at 17% tax rate)		Excluding tax deduction	Including tax deduction (at 17% tax rate)
Sun Life永明豐碩延期年金計劃	2.5%	3.2%	222%	3.8%	4.3%	307%
宏利歲稅樂享延期年金	1.7%	2.4%	184%	4.2%	5.0%	339%
安盛「賞精彩」延期年金計劃	1.5%	2.2%	173%	4.3%	5.1%	347%
Notes: 1. If there is a one-year difference between purchasing the annuity and the tax deduction, when calculating the above internal rates of return, we assume the tax relief begins one year after the premiums are paid. 2. The Hong Kong Inland Revenue Department's marginal tax rates are 2%, 6%, 10%, 14% and 17%. The above assumes a tax allowance of HK$60,000 and calculates using the highest rate of 17%. However, the actual tax savings depend on individual circumstances and may differ from the amounts stated in the case. 3. The above premium information is updated to October 10, 2024, and does not include the levy on premiums charged by the Insurance Authority.

The tax-deduction effect significantly boosts returns

Compared with ordinary annuities, the tax benefits of tax-deductible annuities are particularly attractive. Policyholders only need to take out a policy before March 31 each year (the end of the tax season) to obtain a tax deduction. The maximum deductible amount per year is HK$60,000; at the current top salaries tax rate of 17%, the actual tax saving is HK$10,200.

Sun Life’s maturity-guaranteed internal rate of return (IRR) before tax is 2.5%; after the tax deduction the IRR reaches 3.2%, the highest among the three products (see Table 2); as for the expected IRR, it will further increase after the tax deduction, with the three products’ returns ranging between 4.5% and 5.1%.

In fact, using the current top salaries tax rate of 17% and treating the tax deduction as an effective premium reduction significantly increases the ratio of guaranteed income to premiums after tax deduction. For the two products cited, Manulife’s rises from 153% to 184%, and Sun Life’s from 184% to 222%.

Compare the early guaranteed surrender values and death benefit provisions

Assuming the tax-deductible annuity is contributed from age 45 for 10 years, and is planned to be received from age 65 to 85, if an unforeseen event occurs before the annuity is paid out and the policyholder needs cash and surrenders early, how much can be retrieved?

Comparing 3 products (see Table 3), if contributions finish at age 55 and the policy is surrendered immediately, the policyholder is guaranteed to get back 84% to 90% of the premiums paid. If surrendered at age 65, all products guarantee breakeven, with Sun Life guaranteeing a return of 138% of premiums paid.

Table 3: Comparison of early guaranteed surrender values and death benefits of tax-deductible annuities

10Life comparison of tax-deductible annuities	Early guaranteed surrender value as % of premiums paid		Early guaranteed death benefit as % of premiums paid
10Life comparison of tax-deductible annuities	At age 55	At age 65	At age 55	At age 65
Sun Life永明豐碩延期年金計劃	90%	138%	100%	138%
宏利歲稅樂享延期年金	84%	106%	100%	106%
安盛「賞精彩」延期年金計劃	90%	108%	101%	108%
Note: 1. The premium data above are updated to 10 October 2024 and do not include the premium levy charged by the Insurance Authority.

As for the policy's early guaranteed death benefit, if the insured unfortunately dies at age 55 (the 10th policy year), the beneficiary will receive at least a guaranteed death benefit equal to 100% to 101% of premiums paid. If death occurs at age 65 (the 20th policy year), Sun Life guarantees a death benefit of up to 138% of premiums paid.

In summary, for policyholders seeking a stable retirement, when choosing a tax-deductible annuity it is most important to pay attention to whether the guaranteed returns are competitive; you should also compare early surrender or death provisions. For a detailed comparison of the above tax-deductible annuity products, you can visit 10Life's Product Decoder.

Note:

1. This article was prepared by 10Life using market information collected from various sources for general reference only. It does not consider any individual needs or suitability and should not be regarded as sales advice. Before purchasing, consult a licensed insurance adviser to discuss the insurance solution that suits you, and rely on information provided by the insurance company.

2. The premium data above are updated to 10 October 2024 and do not include the premium levy charged by the Insurance Authority.

3. Last updated: 25 October 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.

10Life 編輯團隊

團隊成員由一群資料搜集員組成，主力保險相關資訊研究。

About Author

10Life 編輯團隊

團隊成員由一群資料搜集員組成，主力保險相關資訊研究。

About Author

Disclaimer

10Life 产品比较和 10Life 保险评分由获保监局授权持牌保险经纪公司 10Life Financial Limited（保监局牌照号码为FB1526）营运。10Life 产品比较和 10Life 保险评分是根据产品数据、事实陈述以及数据，并以一般消费者作为对象，从而作出数学运算，并不受与保险公司任何形式之合作或所获得之费用所影响。

10Life平台上之任何信息（「10Life信息」），包括但不限于产品比较、产品评分、网志文章等，旨在向香港特别行政区（「香港」）境内人士发布，所有信息及服务对象为于身处香港境内人士，仅供一般教育及参考用途。10Life信息无意，也不应被视为对任何保险、金融或投资产品进行受监管建议或专业建议、推荐、批准、认可、邀请或招揽。10Life信息并没有考虑阁下之个人需要，阅览有关数据也不应被视为正在进行个人合适性评估，且不足以构成任何购买保险产品决定的依据。购买任何保险产品或进行有关保险决定前，阁下应以保险公司提供的数据为准，自行进行研究，及/或寻求持牌保险中介人的独立及专业意见。10Life信息是以最大努力从不同渠道收集、验证、更新而成。10Life集团及其附属公司、关连人士、代理、董事、职员、员工将不会就有关资料引致的责任、索偿或损失负上任何责任，也概不保证或担保有关资料之准确性、完整性和适时性。

所显示保费数据尚未包括保险业监管局收取的保费征费，并均四舍五入至港元个位数。

如阁下对 10Life 产品比较和 10Life 保险评分有任何意见，欢迎电邮至 enquiries@10life.com。

Table of Content

The critical 20 years after retirement: Comparing tax-deductible annuities from multinational insurance companies — guaranteed returns differ by 28%

Hong Kong people's life expectancy is increasing.

Guaranteed annuity income should not be overlooked — the difference between the highest and lowest is 28%

The tax-deduction effect significantly boosts returns

Compare the early guaranteed surrender values and death benefit provisions

Table of Content

Trending

Table of Content

The critical 20 years after retirement: Comparing tax-deductible annuities from multinational insurance companies — guaranteed returns differ by 28%

Hong Kong people's life expectancy is increasing.

Guaranteed annuity income should not be overlooked — the difference between the highest and lowest is 28%

The tax-deduction effect significantly boosts returns

Compare the early guaranteed surrender values and death benefit provisions

Table of Content

Trending