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Seeking tax deductions to boost returns: which offers higher returns—AIA, Prudential or Manulife deferred annuities?
The Government introduced the Qualifying Deferred Annuity Policy (QDAP，Qualifying Deferred Annuity Policy), allowing policyholders to save up to HK$10,200 in tax each year. Major insurance companies have launched QDAPs with tax deductions as a selling point to attract customers. Although annuities are generally intended for retirement, QDAPs require benefits to be paid no earlier than when the policyholder reaches age 50, and the shortest income period is only 10 years. A number of QDAPs that resemble “savings plans” have emerged in the market. For high earners, treating the tax savings as a return may improve the products’ savings returns, but these annuities provide rather limited protection against longevity risk. This time, 10Life compares three major insurance companies’ products — AIA Deferred Annuity Plan, Prudential「雋逸人生」Deferred Annuity Plan and ManulifeManulifeManuLeisure — to see which product offers the highest savings return.
Assuming the policyholder is a 45-year-old man, and with the aim of maximising tax savings, the annual premium would be HK$60,000 (approximately US$8,000), the maximum tax-deductible amount permitted under QDAP, with the shortest five-year premium payment period required by QDAP selected in order to recoup the premiums and complete the benefit payments as quickly as possible. As the income period varies between products, we selected the earliest and shortest income period available under the QDAPs from AIA, Prudential and Manulife for comparison.
Annuity income is divided into guaranteed and non-guaranteed “total income”. The Insurance Authority requires insurance companies to disclose the percentage of guaranteed income in the total annuity income of QDAPs. Among the three products above, Prudential’s QDAP has the highest percentage of guaranteed income, at 85%. However, when we look at the guaranteed income over the entire policy term, Prudential’s QDAP provides only US$45,000, lower than AIA’s QDAP and Manulife’s QDAP, both of which provide guaranteed income of more than US$56,000 over the entire policy term. 10Life regularly emphasises the importance of guaranteed amounts. When comparing products, policyholders should consider both the amount and percentage of guaranteed income.
When calculating returns, 10Life takes into account the time value of money of annuity products. One important indicator is the internal rate of return (IRR). For the products above, at the end of the policy term, the guaranteed IRRs of the three products are only between 1% and 1.6%. However, if the tax savings are treated as a return (assuming the highest marginal tax rate of 17%), the guaranteed IRRs of all three products increase significantly: Prudential’s QDAP reaches 2.5%, while Manulife’s QDAP and AIA’s QDAP both rise to 2.4%.
Looking at the total return, Manulife’s QDAP originally has an expected IRR of 3.9%, which is expected to rise to 4.8% after taking the tax benefit into account. The expected IRRs of Prudential’s QDAP and AIA’s QDAP (after the tax benefit) also increase significantly, to 4.4% and 4.0% respectively. However, total return includes a non-guaranteed component, which may not be paid in full.
10Life has always placed emphasis on guaranteed returns. The guaranteed IRRs of the three companies’ products (after taking tax savings into account) range from 2.4% to 2.5%, which may appear similar. However, the different benefit payment periods of the products result in different cashflow. Even on the basis of the earliest and shortest income period, the overall policy terms of the products (from premium payments to the completion of benefit payments) differ in length. Manulife’s QDAP takes 40 years to achieve a guaranteed IRR of 2.4%, while AIA’s QDAP takes only 30 years, although income does not begin until age 65. As for Prudential’s QDAP, income begins at age 50, the earliest among the three, and it has the shortest policy term. When making a selection, policyholders should consider which income period best suits their needs.
In fact, if the aim is to recoup the premiums more quickly and increase savings through tax savings, there are still many annuity products in the market offering better returns than those of the three major brands. For details, please visit 10Life’s 《Product Decoder》 article 《Qualifying Deferred Annuity - Tax-Deductible Savings》.
In addition, policyholders should be clear about their own needs. This article focuses on tax-deductible savings and does not take longevity risk into consideration. However, if retirement is your primary objective, your focus will be quite different. You may refer to 《Qualifying Deferred Annuity - Tax-Deductible Retirement》.
The author understands that this article involves a number of technical terms that may not be easy to understand. You may want to know how the return of a qualifying deferred annuity would look based on your age and tax rate. If you have any questions about annuities, you can use 《Ask a Question Anonymously》 on the 10Life website or App to receive immediate replies from multiple licensed advisers.
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
