[Plan early for retirement] Qualified Deferred Annuity: create steady cash flow

Retirement expenses are becoming increasingly high, with a survey¹ finding that the monthly living expenses of retirees in Hong Kong have risen to HK$13,800. Essential costs such as eating out, buying daily necessities and medical expenses may all be higher than before, so it is especially important to make financial arrangements for retirement as early as possible. Whether you are an office worker, a gig worker or an entrepreneur, the common goal is to enjoy a worry-free retirement in the future, or even to fulfil dreams and embark on a "second life", such as travelling the world or developing new interests. But are your finances sufficiently prepared? As a retirement planning tool, qualifying deferred annuity is one popular option, providing a steady cash flow for retirement, while also allowing you to enjoy tax deductions of up to HK$60,000 on the premiums paid for qualifying deferred annuity policies*. BOC Group Life Assurance Company Limited ("BOC Life")'s "BOC Life Deferred Annuity Plan (Fixed Term)" can provide the policyholder with a stable guaranteed monthly annuity income for 10 consecutive years, enabling office workers to enjoy their golden 10 years after retirement. Another "BOC Life Deferred Annuity Plan (Lifetime)" guarantees a lifelong monthly income after the age of 60, so that even if retirees live to 120, they can still receive annuity income to help support their living expenses.

Inflation, coupled with rising prices across the board, may increase spending after retirement. If you simply take a “we’ll deal with it when the time comes” approach, it may already be too late by then. Many office workers buy deferred annuity products, one of the purposes being to receive monthly annuity payments in retirement, much like “being able to create a steady income stream without having to go to work”. In general, an appropriate qualifying deferred annuity plan is chosen according to one’s individual financial goals.

Taking “BOC Life Deferred Annuity Plan (Fixed Term)” as an example, for those who wish to receive a “monthly salary” after retirement, they only need to pay premiums for 5 years. Depending on the policy term selected at the time of application, they can receive 100% of the guaranteed monthly annuity income^2,3 for 10 years starting from the designated annuity income commencement age under the policy. The annualised guaranteed internal rate of return is between 1.73% and 3.30% upon policy maturity⁴, depending on the policy term, policy currency and premium payment mode chosen by the policyholder.

For example, if a 45-year-old applies and pays an annual premium of HK$60,000 for 5 years, with a policy term of 30 years, they can start receiving a guaranteed annuity income of HK$5,265 per month for 10 consecutive years from age 65 to 74, totalling HK$631,800^2,3. The annualised guaranteed internal rate of return at policy maturity is 3.30%⁴, outperforming Hong Kong’s full-year inflation rate of 2.1% in 2023⁵.

After working hard for most of their lives, some people choose to travel the world after retirement to broaden their horizons; others pick up their hobbies again and pursue dreams beyond their careers. However they choose to enjoy the second half of life, financial support is still needed. The “中銀人壽延期年金計劃（固定年期）” can provide a range of options for planning your “second life”:

• Diverse policy currency options⁶: You can freely choose different policy currencies at the time of application according to your personal needs, including Hong Kong dollars, US dollars and Renminbi. For example, some people may consider living elsewhere after retirement to enjoy life, such as moving to Mainland China to reunite with family. In that case, they may consider choosing a Renminbi policy at the time of application. If you hope to travel overseas in retirement, you may consider choosing a US dollar policy at the time of application.
• Different policy terms to meet the needs of applicants of different ages: Applicants only need to pay premiums for 5 years to enjoy a guaranteed annuity income for 10 years^2,3 (i.e. create your own 10-year retirement income), and may choose policy terms of 15, 20, 25 or 30 years according to their personal needs. If you purchase a longer-term policy when you are younger, you will have more time for your wealth to grow, giving your retirement life a greater chance of accumulating more savings. In addition, the “中銀人壽延期年金計劃（固定年期）” can be applied for as early as age 30, with monthly guaranteed annuity income^2,3 payable from age 50, helping you realise your retirement “second life” sooner.
• Whether you are in your prime, middle age or approaching retirement, you can purchase a deferred annuity and enjoy tax deductions when you have assessable income⁷, while also receiving stable monthly guaranteed annuity income after retirement.
• The “中銀人壽延期年金計劃（固定年期）” can also be applied for through a dedicated insurance agent or BOC Hong Kong Mobile Banking, making it convenient for different lifestyles.

As the population ages and medical technology advances, living to 120 is no longer a dream for modern people, so life after retirement may last for decades. If you expect to live longer, you would also hope your monthly annuity income can continue for life, to hedge against the financial risks brought by longevity and factors such as inflation. The 中銀人壽延期年金計劃（終身） is the only qualifying deferred annuity plan on the market that guarantees retirees receive a monthly payout for life after the age of 60. It also provides non-guaranteed monthly annuity income (monthly bonuses)⁸ and terminal bonuses⁸ to enhance potential returns. In addition, policyholders may choose different currencies at the time of application according to their retirement planning, such as HKD, RMB or USD⁶.

From now until 30 April 2024, customers who successfully take out 中銀人壽延期年金計劃（固定年期） via BOCHK Mobile Banking and register as a member of the “大家減齡” Rewards Programme may have the chance to receive one GARMIN Venus SQ 2 smart band (worth HKD 2,099) (“‘大家減齡’ Offer”)⁹. Meanwhile, customers who successfully apply for “中銀人壽延期年金計劃（終身）” on or before 30 June 2024 can enjoy a discount of up to 30% off the first-year premium¹⁰¹¹ (“First-Year Premium Discount Offer”)! The “大家減齡” Offer⁹ and the first-year premium¹⁰ discount¹¹ offer are subject to terms and conditions.

*Note: The annual tax-deductible limit for premiums of qualifying deferred annuities and tax-deductible MPF voluntary contributions is HKD 60,000 in total, and the policyholder (as a Hong Kong taxpayer) may apply for tax deduction under salaries tax and personal assessment.

Note:

1. Source: The latest Hong Kong Retirement Expense Index published by the Institute of Financial Planners of Hong Kong on 6 June 2023.
2. The policy will, by default, pay the guaranteed monthly annuity income in cash. If the policy owner chooses to withdraw the guaranteed monthly annuity income and/or any accumulated interest (if any), the withdrawn guaranteed monthly annuity income and/or any accumulated interest (if any) will no longer accumulate as part of the policy’s total cash value and total death benefit, and the total cash value, surrender value and total death benefit will be reduced accordingly. For details, please refer to the Policy Benefit Illustration Summary and contact BOC Life.
3. If you wish to accumulate the guaranteed monthly annuity income with BOC Life, you may submit the relevant application to BOC Life after the policy takes effect. The accumulation interest rate for the guaranteed monthly annuity income is not guaranteed and may be adjusted from time to time. Past performance is not an indicator of future performance. The actual amount payable may be higher or lower than estimated, and BOC Life reserves the right to make changes at any time.
4. The annualised guaranteed internal rate of return at maturity is calculated based on the payable guaranteed monthly annuity income and assumes that (i) the policy owner chooses to receive in cash, in full and on time each month, the guaranteed monthly annuity income paid on each month-end during the annuity payout period; (ii) levy and premium discount, if any, and prepaid premium, if any, are excluded; and (iii) all premiums due have been paid in full. If the policy owner surrenders the policy before maturity, the actual annualised guaranteed internal rate of return will be lower than expected, and the total of the surrender value and the guaranteed monthly annuity income withdrawn may be less than the total premiums paid. These percentages have been rounded and revised to two decimal places, and are subject to the selected policy term, policy currency and premium payment mode.
5. Source: Hong Kong Economic Times, 22 January 2024: Hong Kong’s CPI rose 2.4% in December 2023; full-year inflation rate was 2.1%.
6. RMB and USD policies involve exchange rate risk. The HKD value of the premiums, charges and fees (if applicable), account value / surrender value and other benefits of RMB or USD policies will change with exchange rate movements, as RMB or USD may rise or fall against HKD. The RMB/HKD exchange rate is based on the market-based exchange rate selected by BOC Life from time to time and may differ from the bank’s quoted rates. If customers choose to pay the premiums of RMB or USD policies in HKD, or request the insurer to pay the account value / surrender value or other benefits of RMB or USD policies in HKD, they may suffer losses due to exchange rate fluctuations. RMB conversion restriction risk - RMB insurance may create profit opportunities and loss risks due to exchange rate fluctuations. If customers convert RMB into HKD or other foreign currencies, they may suffer losses due to changes in the RMB exchange rate. RMB is not yet fully freely convertible. The exchange rate for RMB conversion through bank accounts for individual customers is the offshore RMB exchange rate. Whether conversion can be processed in full or immediately depends on the bank’s RMB position and commercial considerations at the time. Customers should consider in advance and understand the impact this may have on RMB funds.
7. The above plan is a qualifying deferred annuity plan recognised by the Insurance Authority (“IA”). The annual tax-deductible limit for premiums of qualifying deferred annuity and tax-deductible voluntary contributions to MPF is HKD 60,000 in total, and the policy owner (as a Hong Kong taxpayer) may be eligible to claim tax deductions under Salaries Tax and Personal Assessment. Please note that the status of a product as a “qualifying deferred annuity policy” does not necessarily mean that you are eligible for tax deductions applicable to premiums paid under such policies. The status of a product as a “qualifying deferred annuity policy” is based on the product features and certification by the IA, not on the facts of your personal circumstances. You must also satisfy all eligibility requirements under the Inland Revenue Ordinance and any guidance issued by the Inland Revenue Department before you can claim such tax deductions. Any general tax information is for reference only and you should not make any tax-related decision solely based on such information. If in doubt, you must consult a professional tax adviser. Please note that tax laws, regulations or interpretations may change and may affect tax benefits, including eligibility for tax deduction applications. BOC Life has no obligation to inform you of any such changes and how they affect you. For further information on tax concessions applicable to “qualifying deferred annuity policies”, please refer to the IA website at www.ia.org.hk and the website of the Inland Revenue Department of the Hong Kong SAR at www.ird.gov.hk. IA certification only indicates that the relevant product meets the requirements stipulated by the IA and does not constitute a recommendation or endorsement of the relevant plan policy, nor does it guarantee the commercial merits or performance of the relevant plan policy, and it does not indicate that the relevant plan policy is suitable for all policy owners or endorse suitability for any particular policy owner or class of policy owners. The relevant plan policy has been authorised by the IA; however, this certification does not represent an official recommendation by the IA. The IA accepts no responsibility for the contents of the product brochure of the relevant plan policy, makes no representation as to its accuracy or completeness, and expressly disclaims any liability for any loss arising from or in reliance on all or any part of the contents of the product brochure of the relevant plan policy.
8. “BOC Life Deferred Annuity Plan (Lifetime)” is a participating policy. Its non-guaranteed monthly annuity income (monthly bonus) (if any), accumulation interest rate for guaranteed monthly annuity income and bonus accumulation interest rate, as well as terminal bonus (if any), are not guaranteed and may be adjusted from time to time. Past performance is not an indicator of future performance. The actual amount payable may be higher or lower than estimated, and BOC Life reserves the right to make changes at any time. The guaranteed monthly annuity income, non-guaranteed monthly annuity income (monthly bonus) (if any) and the accumulated interest thereon will first be used to settle any outstanding arrears.
9. You must register or upgrade to become a premium member of the “Everyone Can Look Younger” Rewards Programme (also applicable to existing premium members of the “Everyone Can Look Younger” Rewards Programme), and obtain a redemption code via the “Everyone Can Look Younger” Rewards App. Quotas for the “Everyone Can Look Younger” offer are limited and subject to terms and conditions. For details, please refer to China Banking Corporation (Hong Kong) Limited (“BOCHK”) website > Insurance > Latest Promotion > “Everyone Can Look Younger” Limited-time Privileges.
10. “First-year premium” is calculated based on the “annual premium at application” stated in the insurance proposal. The first-year premium does not include the premium levy, prepaid premium (if applicable) or extra premium due to health conditions (if applicable).
11. The amount of premium discounted under the first-year premium discount offer will not be regarded as paid qualifying annuity premiums eligible for tax deduction claims. In determining the amount of premium discount, the premium does not include the premium levy, prepaid premium (if applicable) or extra premium due to health conditions (if applicable). If the eligible policy lapses or is surrendered before the premium for any subsequent policy year is duly paid, the discounted premium benefit amount will be deducted from the refund amount before it is returned to the policy owner. For the avoidance of doubt, any prepaid premium in the prepaid premium account will not be regarded as premiums paid under the policy until it is deducted from the prepaid premium account upon premium maturity. The first-year premium discount offer is subject to terms and conditions. For details, please refer to the latest customer promotion leaflet uploaded under BOC Life website > Latest Information > Latest Customer Promotions.

This promotional material is for reference only and is distributed only within Hong Kong. It shall not be construed as an offer, solicitation or recommendation to offer or sell, or invite any purchase of any BOC Life products outside Hong Kong. This promotional material must be read together with the product brochure of the above plan. For details of the above plan and supplementary benefits cover (if any), including but not limited to the benefit items and coverage, full terms, key risks, conditions, exclusions, important notes, policy charges and fees, please refer to the sales documents issued by BOC Life, including the product brochure, benefit illustration, policy documents and terms. If you have any enquiries, please contact the branch staff of the principal insurance agency / your professional financial adviser.

The above information is provided by the advertiser for the purpose of promoting products and services. 10Life Financial Limited shall not bear any liability, claim or loss arising from the use of the information. 10Life Financial has not verified the relevant information and will not guarantee or warrant the accuracy, completeness or timeliness of the information.

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.