[Tax-saving must-have] How soon does a tax-deductible annuity pay back? How can you maximise your tax deduction?

“Tax-deductible annuities” (Qualifying Deferred Annuity Policies, QDAP) can help policyholders plan for retirement and generate cash flow. Combined with tax deductions, they are highly popular among salaried employees. With the cap on salaries tax relief reduced, and some salaried employees having already “paid up” on the annuities they took out in 2019, they may once again make good use of this “tax-saving tool” this year to look for a new tax-deductible annuity policy, in order to avoid the tax-saving benefit coming to an end. As a result, discussion around tax-deductible annuities has become particularly heated.

Some insurers have launched promotions in the fourth quarter to “grab customers”, increasing premium discounts, shortening the breakeven period for tax-deductible annuities, and further boosting returns. 10Life found that some tax-deductible annuities can guarantee breakeven in as little as 5 years², while some products can achieve an expected internal rate of return of 5.7% over 8 years².

The tax deduction limit for tax-deductible annuities is HK$60,000. Calculated at the highest salaries tax rate of 17%, this means you can save up to HK$10,200 in tax each year. This time, we compared several popular tax-deductible annuities in the market, including BOC Life, Chubb Life, Generali, Hang Seng Insurance, HSBC, AIA and Prudential. Below are the premium discount offers¹ from the insurers as of the time of writing, see Table 1. Among them, Chubb Life offers the largest premium discount, with an annual premium discount of 12% over a 5-year premium payment term. 

In response to the Insurance Authority’s requirements, the fastest breakeven year for tax-deductible annuities, after discounts and before tax deductions, is 8 years. However, this year we found that some insurance companies have enhanced their discount offers, and some tax-deductible annuities can reach guaranteed breakeven after 5 years of premium payments (calculated using the 17% tax band). These are the tax-deductible annuities from BOC Life, Hang Seng Insurance and AIA, all of which offer 100% guaranteed returns.

Among them, BOC Life’s tax-deductible annuity offers the highest 5-year return. Assuming the policyholder is a 45-year-old non-smoking man, with actual premiums of HK$300,000 over 5 years, and taking into account the discount offer and tax deductions (calculated using the 17% tax band), BOC Life’s product can achieve a 4.1% guaranteed internal rate of return (IRR) after 5 years, with a return amount of over HK$334,000². The relevant offer is available to selected customers only; see Table 2.

Although products that offer a relatively quick payback period have their market, many policyholders are willing to hold tax-deductible annuities to earn a higher rate of return. We have therefore also analysed the 8-year mid-term performance of tax-deductible annuities, as shown in Table 3.

On guaranteed returns, BOC Life’s tax-deductible annuity continues to perform strongly. Its 8-year guaranteed internal rate of return (IRR) (calculated at the 17% tax band) reaches 4.8%, and the guaranteed return amount also increases to HK$377,000².

Another product worth noting is Chubb Life’s tax-deductible annuity. The product’s 8-year guaranteed internal rate of return (calculated at the 17% tax band) is 4.6%. With such a high guaranteed level, the product still pays dividends, lifting its 8-year projected internal rate of return (IRR) (calculated at the 17% tax band) further to 5.7%, with projected returns exceeding HK$402,000². 

Table 3 shows an interesting case. After taking into account the discounts and tax deductions, in Year 8, BOC Life’s guaranteed IRR is higher than Chubb Life’s, but Chubb Life’s guaranteed return is higher than BOC Life’s. Why is this? Because BOC Life’s policy term is shorter and annuity payments start earlier, so when IRR is calculated with the time value of money taken into account, BOC Life is more favourable. However, in terms of total return value, Chubb Life in Year 8 is actually higher.  

Many working people buy tax-deductible annuities solely to “save tax” and to achieve a quick break-even year. While some products in the market can break even as early as the fifth year², what matters more is that, as a retirement planning tool, the role of a tax-deductible annuity in providing a “self-funded pension” should not be overlooked. Policyholders should pay closer attention to the long-term performance of holding a tax-deductible annuity to maturity, as shown in Table 4.

Among the above tax-deductible annuities, the shortest policy term is BOC Life Tax Deductible Annuity, with a policy term of just 15 years. Its guaranteed internal rate of return (IRR) at maturity (based on the 17% tax bracket) reaches 6%, the highest guaranteed IRR among the compared products. The guaranteed return is as high as HK$448,000², which is 1.3 times the return from surrendering after 5 years.

In terms of expected return at maturity, BOC Life’s tax-deductible annuity is also the most aggressive, with an expected internal rate of return (based on the 17% tax bracket) at 20-year maturity reaching 6%. HSBC ranks second, with an expected internal rate of return of up to 5.8%, and expected returns of as much as HK$568,000².

This shows that as the annuity payout period begins, the cumulative annuity income received by the policyholder increases. If the product is held to maturity, a tax-deductible annuity can further serve the purpose of creating one’s own “retirement income”. If you would like to plan for retirement early and understand the discount “benefits” of a tax-deductible annuity, please feel free to contact 10Life’s insurance advisers to find the annuity product that suits you.

Notes:

1. As at 6 October 2025, discount offers provided by the insurance company. The insurance company reserves the right to amend the discount offer without prior notice.
2. Assuming the policyholder is a 45-year-old non-smoking male, with a 5-year premium payment term and total premiums of HK$300,000 after discount (converted based on a USD policy), excluding the levy on premiums. This comparison is based on the discount offer available for the product at the time (if any), and the tax savings under the assumption that the policyholder is required to pay at the highest tax band of 17%, in order to derive the guaranteed internal rate of return, guaranteed return (including total premiums), expected internal rate of return and expected return (including total premiums). Minor discrepancies may arise after conversion and are for reference only. The insurance company’s information shall prevail.

Last updated on 8 July 2026. 

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.