【Retirement Financial Solutions】Understanding Deferred Annuities — Learn about Tax Deductions and Income Options

People in Hong Kong are living longer. Census and Statistics Department data¹ show that the average life expectancy for men and women has risen to 82.5 years and 88.1 years respectively. How to maintain a high-quality post-retirement life is unquestionably an important life issue. To confidently start the second half of life, planning your finances early is crucial.

Among retirement planning tools, what the market calls "tax-deductible annuities" (i.e., Qualifying Deferred Annuity policies) are very popular with salaried workers, as they allow the use of an annual tax deduction of up to HK$60,000², easing the tax burden while preparing for retirement. YF Life's newly launched "YF Deferred Annuity 3" provides guaranteed monthly annuity income, adds a lifelong annuity option to give customers more choices in annuity terms, and also allows customers to choose to accumulate annuity funds to earn interest. The variety of options enables customers to tailor a suitable annuity plan for themselves, an important step toward achieving a "quality" retirement.  

Deferred annuities help ease clients' worries about having no income after retirement by converting savings into a guarantee of steady monthly income in retirement. "萬通延期年金3" offers different premium payment terms and accumulation periods, providing continuous and stable guaranteed monthly annuity income.

Annuity income is generally divided into guaranteed and non-guaranteed portions, with the latter affected by factors such as the insurer’s investment returns, claims and profits. "萬通延期年金3" has a guaranteed internal rate of return ranging from 1.01% to 2.79%³, while the total internal rate of return including the non-guaranteed portion⁴ ranges from 3.07% to 4.97%³, depending on the policyholder’s age at entry and the chosen premium payment term, payment method, accumulation period, and annuity period — fully leveraging wealth accumulation potential to bring additional cash flow for retirement life. 

As a plan that spans decades, flexibility is an important consideration. "YF Deferred Annuity 3" offers a range of options, including different premium payment terms, accumulation periods, annuity terms, and ways to receive annuity payments, allowing customers to select the right combination according to their personal needs at the time of application.

• Optional premium payment term: as short as 5 or 10 years, with no medical underwriting required.
• Optional accumulation period: choose an accumulation period of 10/20/30 years; once the accumulation period ends, you can begin receiving monthly annuity income.
• Optional annuity term: according to personal retirement needs, choose a fixed annuity term of 10 or 20 years, with a newly added lifetime annuity option so income can last for the long term.
• Optional monthly annuity payout method: in addition to choosing to receive monthly annuity income in cash as the default option, "YF Deferred Annuity 3" has newly added a scheme to accumulate the monthly annuity income⁵ within the policy to continue earning interest⁶, capturing more growth opportunities; it can be withdrawn at any time later without additional charges; you can also change the annuity payout method an unlimited number of times, free of charge. 

One attractive feature of a qualifying deferred annuity is that its premiums are eligible for tax deductions. "My Deferred Annuity 3" is a qualifying deferred annuity policy certified by the Hong Kong Insurance Authority⁷, and the combined annual tax-deductible limit for qualifying deferred annuity premiums and tax-deductible voluntary MPF contributions is HK$60,000². At the highest salaries tax rate of 17%, an individual can save up to HK$10,200 in tax per year.

Case study⁸: Pursuing a dream while receiving monthly income

Mr. Ho, a 45-year-old married accountant, hopes to realize his dream of photography after retirement. While his career was stable, he purchased the "My Deferred Annuity 3", paying an annual premium of US$8,000 (equivalent to HK$62,400 per year), payable over 5 years, hoping to receive a stable annuity income when he retires at 65 so he can fully pursue his dream, and to enjoy tax deduction benefits during the contribution period. 

Mr. Ho chose a plan with a 20-year accumulation period and lifetime annuity payouts, receiving a guaranteed monthly annuity income of US$206 (HK$1,607) from age 65. If non-guaranteed annuity income is included, the expected monthly annuity income can reach US$412 (HK$3,214), with a total internal rate of return of 4.47% by age 95.

As for tax deduction benefits, both Mr. Ho and his wife have taxable income and, in each assessment year, may freely allocate the tax deduction for qualifying deferred annuity policy premiums up to a combined limit of HK$120,000. By deducting HK$60,000 from his premiums, Mr. Ho can further allocate the remaining tax-deductible premium balance, namely HK$2,400, to his wife for her tax deduction claim.  

Retirement is the start of a "second life." By planning early, today's quiet efforts can be turned into the realization of your ideal retirement lifestyle. " YF Life Deferred Annuity 3" offers options for different premium payment terms, accumulation periods, annuity periods and annuity payment methods, allowing you to create a flexible and superior retirement plan while customizing your retirement finances. From now until 31 March 2025, successful applications can enjoy discounts totalling up to 38% of the first-year premium. Learn more now: https://www.yflife.com/sites/default/files/CurrentPromotion/YFLife-Current-Customer-Promotions-TC.pdf 

Last updated: 10 February 2025

Notes:  
1. Source: Census and Statistics Department data https://www.censtatd.gov.hk/tc/wbr.html?ecode=B11303032024AN24&scode=180
2. The tax deduction available to each taxpayer in each tax year is the sum of qualifying deferred annuity premiums and MPF voluntary contributions that can be used for deduction, up to HK$60,000. For details, please refer to "Important Information" under "3. Tax definition of qualifying deferred annuity policies" in the product brochure.
3. The above rates of return assume annual premium payments.
4. Under normal circumstances, YF Life will publish the non-guaranteed monthly annuity income once a year. During the annuity period, its amount may increase or decrease due to multiple factors, including but not limited to claims, expenses, investment returns and surrenders. In certain circumstances, the non-guaranteed monthly annuity income may be zero.
5. If there are any policy loans outstanding after the commencement of the annuity period, the monthly annuity income will be used to repay those policy loans. After the policy loans have been fully repaid, the remaining balance will be paid according to the policyholder's chosen method of receipt.
6. The accumulation rate for annuity income is non‑guaranteed and will be determined by YF Life from time to time.
7. Policyholders who are not liable to pay Salaries Tax or personal income tax in the Hong Kong Special Administrative Region may not be eligible for the tax deduction. The extent of any tax deduction depends on various factors and the taxpayer’s individual circumstances.
8. The above information is for reference only. For details of coverage and terms, exclusions, and the main product risks, please refer to the policy documents and product brochure (https://bit.ly/4gRnm63 ).

Figures in the cases are hypothetical and for illustrative purposes only. The expected accumulated monthly annuity income and expected cash value are calculated on the assumption that premiums are paid in full and on schedule, the basic plan's annual premium remains unchanged, monthly annuity income is withdrawn in cash at each policy month-end whenever available, there are no partial surrenders, no policy loans during the coverage period, and an exchange rate of USD 1 = HKD 7.8 is used. Expected policy values are rounded to whole numbers, and internal rate of return values are rounded to two decimal places.  

Guaranteed internal rate of return and total internal rate of return are determined by multiple factors, such as the insured's age at entry, premium payment term, payment mode, accumulation period, and annuity period. The calculation of guaranteed internal rate of return and total internal rate of return does not include the effect of levies on premiums collected. During the annuity period, the actual non‑guaranteed monthly annuity income and actual terminal bonuses may fluctuate from time to time at the company's discretion and may be higher or lower than the stated amounts. The total internal rate of return is non‑guaranteed.  

The actual amount of non‑guaranteed monthly annuity income may increase or decrease during the annuity period, and the actual amount of terminal bonuses may also increase or decrease from time to time; in some cases, the non‑guaranteed monthly annuity income and/or terminal bonuses may be zero.  

The information above provides general plan information for reference only, is not part of any policy, and does not cover all policy terms. For full details of the plan, complete terms and conditions, scope of coverage, details and exclusions, please refer to the policy documents. The information above cannot be used as any contract between YF Life and any person or entity. The information is intended for circulation in Hong Kong only and must not be construed as YF Life offering, selling, soliciting the purchase of, offering, inviting or advising on any insurance products outside Hong Kong. If you are not currently located within Hong Kong, YF Life will not be able to provide you with information about the product or the promotion.

All cases and other explanations or examples provided above are for reference and illustrative purposes only and do not constitute forecasts of future performance. Depending on the insured's age, gender, risk class, smoking status and place of residence, the actual premiums, charges and benefits for each case may vary. Although YF Life has taken care in preparing the information above, YF Life makes no express or implied warranty as to its accuracy and accepts no liability in respect thereof. In the event of any inconsistency or ambiguity between the content of this information and the relevant policy contract, the policy contract shall prevail.

Before applying for any tax deduction, you must meet any guidance issued by the Inland Revenue Department of the Hong Kong Special Administrative Region and all eligibility requirements under the Inland Revenue Ordinance. Any general tax information provided herein is for reference only and should not be relied upon as the sole basis for any tax decision. If in doubt, consult a qualified tax adviser. Please note that tax laws, regulations or interpretations may change at any time and may affect eligibility for tax deductions or any tax benefits. We accept no responsibility for failing to notify you of changes to such laws, regulations or interpretations in a timely manner or for any impact such changes may have on you. For any tax enquiries, please contact the Inland Revenue Department directly.

Any tax information provided above is for reference only. For more tax details, please visit the Inland Revenue Department website (www.ird.gov.hk) or consult your tax adviser.

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.