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Leverage the multiple benefits of tax-deductible annuities to plan flexibly for your retirement needs.
Since the 2020/21 year of assessment, when the Hong Kong Government reduced the ceiling for salaries tax reduction from HK$20,000 to HK$10,000, many people with limited tax-planning awareness have had to reconsider their tax-deduction arrangements. As a result, demand for the already popular “three tax-deductible essentials”—Voluntary Health Insurance Scheme (VHIS) plans, tax-deductible voluntary contributions (TVC) to the Mandatory Provident Fund, and qualifying deferred annuity policies (QDAP, tax-deductible annuities)—has grown even stronger, particularly for tax-deductible annuities.
Although the 2021/22 year of assessment ended on 31 March this year, savvy employees should continue to look out for opportunities to identify tax savings through tax-deductible annuities and prepare for retirement.
The Government introduced tax-deductible annuities as early as 2019, with the aim of encouraging people to plan for retirement earlier through tax deductions. Under the tax-deductible annuity arrangement, the maximum tax-deductible amount per person is HK$60,000 per year of assessment. Based on the current highest tax rate of 17%, this could save up to HK$10,200 in tax per year^#; couples who elect for joint assessment could save up to HK$20,400^^# in tax, helping to make up for the reduction in the salaries tax reduction ceiling from HK$20,000 to HK$10,000.
Consider the annuity payment period and rate of return when choosing an annuity
Tax-deductible annuities offer many advantages, but the wide range of similar products on the market can be bewildering. The following two points may help you choose a product that suits you.
First, review the annuity payment period. Common options on the market include 10-year, 15-year and 20-year annuity payment periods, as well as even longer periods, catering for different types of consumers. In simple terms, a shorter term can effectively serve tax-planning purposes, while a longer term can offer better retirement planning, generally providing higher potential returns and better supporting wealth accumulation.
Second, review the rate of return of the tax-deductible annuity. As tax-deductible annuities already offer tax-planning benefits, consumers can first review the product’s underlying rate of return, which may make the potential returns even more attractive. Consumers can ultimately consider all relevant factors and choose the product that best suits them. Regardless of age, however, everyone should plan for retirement, particularly younger people. They may consider setting aside part of their income to fund an annuity, which may provide tax deductions# at the time and allow the funds to accumulate, providing financial support in later life.
Flexibility in the annuity payment and coverage periods
The most fulfilling stage of life may be the ups and downs of youth, or the determination and momentum of middle age. However, many people overlook the years after retirement. After working hard for most of their lives, accumulating wealth and maintaining good health, their children have grown up and they can slow down to enjoy life and explore their interests in their spare time. If the wealth accumulated over a lifetime is planned appropriately and converted into a stable cash flow, the financial worries of everyday necessities can be set aside, allowing retirees to fully enjoy the best that retirement has to offer.
Launched by China Taiping Life Insurance (Hong Kong), “China Taiping Fortune Builder Deferred Annuity Plan II” (known as Fortune Builder II), as a tax-deductible annuity, is a protection plan particularly suitable for retirement. The plan not only offers tax deductions, but also enables funds to accumulate and be converted into a stable future income. It is also highly flexible: applicants may be aged between 18 and 60 and may choose to start receiving annuity payments at age 55 or 70. This can align with their post-retirement lifestyle and help policyholders efficiently plan their financial needs after retirement.
The minimum entry age for this product is 18, and the premium payment period is five years. Policyholders may choose to withdraw the annuity at age 55 or 70. For entry ages from 46 to 60, the earliest annuity withdrawal age is 70. The annuity period may also be flexibly set at 10 or 20 years.
Take Mr Chan, a non-smoking accountant who plans to retire at age 70, as an example. To ensure that he has a stable annuity income to support his retirement, he decided at age 45 to pay premiums annually for Fortune Builder II. He pays an annual premium of US$5,000 for five years, giving total premiums of US$25,000. In addition, Mr Chan chose to receive the annuity regularly each year for a 20-year annuity period, beginning at age 70 and continuing until age 89.
Throughout the plan period, Mr Chan is guaranteed to receive total annuity payments of US$49,999, equivalent to a guaranteed IRR of 2.11%* at maturity. If the total non-guaranteed terminal bonuses are included, the projected total annual annuity payments, including guaranteed and non-guaranteed amounts, will reach US$91,436, with an expected IRR of up to 4.02%.
Fortune Builder II summary
Product | China Taiping Fortune Builder Deferred Annuity Plan II | |||
| Premium payment period | 5 years | |||
| Entry age | 18 – 45 | 46 – 60 | ||
| Annuity commencement age | 55／70 | 70 | ||
| Annuity period | 10 years／20 years | |||
| Annuity benefit payment options | Regular payments (monthly／annually) or accumulation with interest under the policy | |||
| Policy currency | US dollars／Hong Kong dollars | |||
| Minimum total premium | US$25,000／HK$180,000 | |||
| Internal rate of return (IRR)* | Annuity commencement age | Annuity period | Guaranteed internal rate of return range at maturity1 | Total internal rate of return range at maturity1,2 |
| 55 | 10 years | HK dollars: 0.48% – 1.12% US dollars: 0.58% – 1.21% | HK dollars: 2.38% – 2.90% US dollars: 2.57% – 3.08% | |
| 20 years | HK dollars: 1.08% – 1.52% US dollars: 1.18% – 1.62% | HK dollars: 2.88% – 3.25% US dollars: 3.07% – 3.43% | ||
| 70 | 10 years | HK dollars: 1.75% – 2.01% US dollars: 1.83% – 2.09% | HK dollars: 3.53% – 3.74% US dollars: 3.69% – 3.90% | |
| 20 years | HK dollars: 1.79% – 2.02% US dollars: 1.89% – 2.11% | HK dollars: 3.65% – 3.83% US dollars: 3.85% – 4.02% | ||
Accidental death benefit and extended premium payment grace period during unemployment
In addition to helping establish a stable retirement income, Fortune Builder II also provides life protection and accidental death protection. If the insured unfortunately dies, the beneficiary will receive the death benefit to help deal with unforeseen circumstances. If the insured dies accidentally during the premium payment period, in addition to the death benefit, Fortune Builder II will also provide an accidental death benefit3, helping to ease immediate financial burdens.
In addition, if the policyholder has been continuously unemployed for 30 days or more and the policy has been in force for at least one year from the policy issue date or reinstatement date, whichever is later, the policyholder may apply for unemployment protection4. Once the application is approved, the grace period for overdue premium payments will be extended from 31 days to 365 days, helping to ease financial pressure during difficult times while ensuring that the protection under the policy is not affected.
For applications for Fortune Builder II made during the promotional period, enjoy a 5% first-year premium rebate&. The promotional period runs from now until 30 June. Find out more:
Notes:
- The “guaranteed internal rate of return range at maturity” and “total internal rate of return range at maturity” in the examples will vary depending on the premium payment method, annuity commencement age, annuity period and selected annuity benefit payment frequency.
- The calculation of the total internal rate of return includes guaranteed and non-guaranteed annuity payments available for withdrawal (if any).
- The accidental death benefit applies before all premiums under the policy have been paid and is subject to a maximum limit of US$125,000 (or the equivalent in the policy currency) per insured person, regardless of the number of policies with the same basic plan under which the same insured person is covered. Please refer to the policy provisions for details.
- Unemployment protection applies before all premiums under the policy have been paid. This unemployment protection may only be used once for each policy, and all rules and requirements specified by the insurance company must be met, including the reason for and duration of unemployment, as well as the period of continuous employment in Hong Kong by the same employer immediately before unemployment. Please refer to the policy provisions for detailed conditions and requirements. Please note that any unpaid premiums during the extended grace period are not eligible for tax deductions. If you have any questions, please seek advice from a professional tax adviser.
- China Taiping Fortune Builder Deferred Annuity Plan II is only available for sale and application in the Hong Kong Special Administrative Region, with an entry age of 18 to 60. Terms and conditions apply. Please refer to the relevant policy provisions, which shall prevail. For detailed product features and related product risks, please refer to the product brochure.
- The premium information above was updated on 24 March 2022 and does not include the premium levy collected by the Insurance Authority.
- For more details, please refer to the China Taiping Life Insurance (Hong Kong) Fortune Builder Deferred Annuity Plan II product webpage.
- The information in this article is provided by China Taiping Life Insurance (Hong Kong) for general reference only. It does not take into account any individual needs or suitability and should not be regarded as sales advice. Before applying, you should discuss an insurance plan suitable for you with a licensed insurance adviser and refer to the information provided by the insurance company.
- This article was last updated on 4 April 2022.
^Based on the applicant’s maximum total tax-deductible amount of HK$60,000 for qualifying annuity premiums and tax-deductible voluntary MPF contributions in a year of assessment, calculated using the highest tax rate of 17%.
^^Based on both spouses being Hong Kong taxpayers, with a maximum total tax-deductible amount of HK$120,000 combined for qualifying annuity premiums and tax-deductible voluntary MPF contributions in a year of assessment, calculated using the highest tax rate of 17%.
#Please refer to the guidance issued by the Inland Revenue Department. If you have any questions, please visit the Inland Revenue Department website or seek advice from an independent tax, legal or accounting adviser.
*The internal rates of return above are for reference only and assume that the policyholder is a non-smoking male who entered the policy at age 45, with a 20-year annuity period commencing at age 70, and that the policyholder withdraws the annuity from the policy once it is paid (annually or monthly). The internal rate of return range above will vary depending on the premium payment method, annuity commencement age, annuity period and selected annuity benefit payment frequency.
&The offer is subject to terms and conditions.
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.
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