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Hong Kong people’s life expectancy is increasing
Guaranteed annuity income should not be overlooked, with a difference of up to 28% between the highest and lowest
Tax deductions significantly enhance returns
Compare early guaranteed surrender value and death benefit terms
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The crucial 20 years after retirement: compare tax-deductible annuities from multinational insurers; guaranteed returns differ by 28%.
When you are young, you can choose the lifestyle you prefer. If you want to continue having choices after retirement, it is important to plan early. The government introduced Qualifying Deferred Annuity Policies (commonly known as tax-deductible annuities, QDAPs) several years ago, offering tax benefits to encourage the public to save while they are young and prepare for retirement expenses. For those who want a stable income during the crucial 20 years after retirement, what product options are currently available on the market? 10Life compares three tax-deductible annuities offered by multinational insurance companies today and finds that guaranteed returns can differ by as much as 28%.
Hong Kong people’s life expectancy is increasing
According to data from the Census and Statistics Department, in 2023, the average life expectancy was 82 years for men in Hong Kong and 88 years for women. If people generally retire at the age of 65, having sufficient cash flow for the subsequent 20 years is crucial to maintaining their quality of life.
In addition to the tax benefits, the most important feature of purchasing a tax-deductible annuity is that the policyholder makes contributions while working. During this period, the insurance company invests the funds to generate growth. When the policyholder reaches the specified age, they can begin the annuity income period.
For retirement planning purposes, we assume that the policyholder is a 45-year-old man who makes contributions for 10 years, paying US$7,800 per year, for total contributions of US$78,000. Annuity payments begin at the age of 65, with an income period of 20 years until the age of 85. We then compare tax-deductible annuities offered by major multinational insurance companies, including Sun Life永明豐碩 Deferred Annuity, Manulife歲稅樂 Deferred Annuity and AXA「賞精彩」Deferred Annuity.
Comparisons of insurance products are meaningful only when they are based on the same terms. If the tax-deductible annuities offered by other major multinational insurance companies do not have the same design, such as those offered by AIA and Prudential, they have not been included in this comparison.
Table 1: Contributions made for 10 years from the age of 45, total contributions of US$78,000, income period from age 65 to 85
Comparison of guaranteed and projected income from tax-deductible annuities
| 10Life tax-deductible annuity comparison | Guaranteed income (US$) | Projected income (US$) | ||||||
| Age 65–74 | Age 75–84 | Total income | Total income as a percentage of premiums paid | Age 65–74 | Age 75–84 | Total income | Total income as a percentage 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歲稅樂享 Deferred Annuity | 59,640 | 59,640 | 119,280 | 153% | 109,820 | 109,820 | 219,640 | 281% |
| AXA「賞精彩」 Deferred Annuity Plan | 56,160 | 56,160 | 112,320 | 144% | 112,320 | 112,320 | 224,640 | 288% |
Notes: 1. The premium information above was updated on 10 October 2024 and does not include the premium levy collected by the Insurance Authority. 2. Ranked by total guaranteed income from the insurance companies, from highest to lowest. | ||||||||
Guaranteed annuity income should not be overlooked, with a difference of up to 28% between the highest and lowest
For many people, retirement is about seeking stability and avoiding budget shortfalls, making the guaranteed income component of a tax-deductible annuity particularly important.
Among the tax-deductible annuities with an income period from age 65 to 85 (see Table 1), Sun Life’s 20-year total guaranteed income is approximately US$144,000, equivalent to 184% of the premiums paid and the highest among the three products. It is followed by Manulife (US$119,000) and AXA (US$112,000), with a 28% difference (approximately US$32,000) between the highest and lowest amounts.
Tax-deductible annuities also provide non-guaranteed income which, together with the guaranteed returns, makes up the “expected income”. AXA offers the higher amount. However, the amount of non-guaranteed income paid is affected by various factors, including the insurer’s investment performance, dividend policy and the economic environment, making the actual amount difficult to predict.
Table 2: Contributions made over 10 years from age 45, total contributions of US$78,000, income period from age 65 to 85
Comparison of the internal rates of return during the 20-year income period and tax-deductible effects of tax-deductible annuities
| 10Life Tax-Deductible Annuity Comparison | Guaranteed internal rate of return at maturity | Total guaranteed income as a percentage of total premiums after tax deduction | Expected internal rate of return at maturity | Total expected income as a percentage of total premiums after tax deduction | ||
| Before tax deduction | Including tax deduction (at a tax rate of 17%) | Before tax deduction | Including tax deduction (at a tax rate of 17%) | |||
| Sun Life Prosperity Deferred Annuity Plan | 2.5% | 3.2% | 222% | 3.8% | 4.3% | 307% |
| Manulife Tax-Saving Enjoyment Deferred Annuity | 1.7% | 2.4% | 184% | 4.2% | 5.0% | 339% |
| AXA “Brilliant Rewards” Deferred Annuity Plan | 1.5% | 2.2% | 173% | 4.3% | 5.1% | 347% |
Notes: 1. As there is a one-year gap between purchasing the annuity and receiving the tax deduction, we assumed that the tax relief begins one year after the premiums are paid when calculating the above internal rates of return. 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 uses the highest tax rate of 17% for the calculation. However, the actual amount of tax savings depends on individual circumstances and may differ from the amount stated in the case study. 3. The above premium information was updated on 10 October 2024 and does not include the levy collected by the Insurance Authority. | ||||||
Tax deductions significantly enhance returns
Compared with ordinary annuities, the tax benefits of tax-deductible annuities are particularly attractive. Policyholders only need to take out a policy before the tax season deadline of 31 March each year to enjoy tax deductions. The maximum tax-deductible amount is HK$60,000 per year. Based on the current highest salaries tax rate of 17%, this translates into an actual tax deduction of HK$10,200.
Sun Life’s guaranteed internal rate of return (IRR) at maturity is 2.5% before tax deductions, while the IRR after tax deductions rises to 3.2%, the highest among the three products (see Table 2). The projected IRR also increases further after tax deductions, with the return rates of the three products ranging from 4.5% to 5.1%.
In fact, based on the current highest salaries tax rate of 17%, treating the tax deduction as a reduction in premiums significantly increases the proportion of guaranteed income to premiums after tax deductions. Taking two of the products as examples, Manulife rises from 153% to 184%, while Sun Life rises from 184% to 222%.
Compare early guaranteed surrender value and death benefit terms
Suppose a tax-deductible annuity is funded for 10 years from age 45, with plans to receive annuity payments from age 65 to 85. If the policyholder encounters an unforeseen event before the annuity payments begin and urgently needs funds, how much could be recovered by surrendering the policy early?
Comparing the three products (see Table 3), if the policy is surrendered immediately after completing the premium payments at age 55, the policyholder is guaranteed to recover 84% to 90% of the premiums paid. If the policy is surrendered at age 65, all products guarantee a return of the premiums paid, with Sun Life guaranteeing a recovery of 138% of the premiums paid.
Table 3: Comparison of the early guaranteed surrender values and death benefits of tax-deductible annuities
| 10Life tax-deductible annuity comparison | Early guaranteed surrender value as a percentage of premiums paid | Early guaranteed death benefit as a percentage of premiums paid | ||
| At age 55 | At age 65 | At age 55 | At age 65 | |
| Sun Life Sun Life Prosperity Deferred Annuity Plan | 90% | 138% | 100% | 138% |
| Manulife IncomePlus Deferred Annuity | 84% | 106% | 100% | 106% |
| AXA “Rewarding Excellence” Deferred Annuity Plan | 90% | 108% | 101% | 108% |
Notes: 1. The premium information above was updated on 10 October 2024 and does not include the premium levy charged by the Insurance Authority. | ||||
As for the early guaranteed death benefit, if the life insured unfortunately passes away at age 55 (the 10th policy year), the beneficiary is guaranteed to receive at least 100% to 101% of the premiums paid. If the life insured passes away at age 65 (the 20th policy year), Sun Life guarantees a death benefit of up to 138% of the premiums paid.
In summary, for policyholders seeking a stable retirement, when choosing a tax-deductible annuity, the most important consideration is whether the guaranteed return is competitive. It is also necessary to compare the early surrender and death benefit terms. To compare the above tax-deductible annuity products in detail, please visit 10Life’s Product Decoder.
Notes:
1. This article was prepared by 10Life using market information collected from various sources and is provided for general reference only. It does not take into account any individual needs or suitability considerations and should not be regarded as sales advice. Before taking out a policy, you should consult a licensed insurance adviser about an insurance solution suitable for you and refer to the information provided by the insurance company.
2. The premium information above was updated on 10 October 2024 and does 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 Editorial Team
Our team of professional content researchers focussing on insurance
10Life Editorial Team
Our team of professional content researchers focussing on insurance
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10Life Product Comparison and 10Life Insurance Ratings are developed by 10Life Financial Limited, an authorised insurance broker company licensed with the Insurance Authority under License Number FB1526. 10Life Product Comparison and 10Life Insurance Ratings are developed for generic customer segments using mathematical calculations based on product information, facts and data, and are not influenced by any partnerships with or fees received from insurance companies. Any information on 10Life Platform ("10Life Information"), including but not limited to Product Comparison, Product Ratings, Blog Articles are intended for general education purpose and reference only. None of the 10Life Information is intended, nor should they be considered or relied upon, as regulated advice, insurance, financial, investment or professional advice, recommendation, approval, endorsement, invitation or solicitation in respect of any insurance, financial or investment products. 10Life Information does not take into account your individual needs. Reading 10Life Information should not be considered as conducting a suitability assessment, and is not sufficient to form the basis of any decisions to purchase any insurance products. You should rely on information authorised by insurance companies, carry out your own research and/or seek independent advice from licensed intermediaries before purchasing any insurance products or making any insurance decisions. While reasonable effort is used when collecting, validating and updating 10Life Information from various channels, none of 10Life Group and its subsidiaries, affiliates, agents, directors, officers and employees will be responsible for any liability, claim or loss arising from or associated with you using 10Life Information. No warranty, representation or guarantee is given by 10Life Group and its subsidiaries on the accuracy, completeness and timeliness of the information. If you have any questions on 10Life Product Comparison and 10Life Insurance Ratings, please email us at enquiries@10life.com
