[Longevity in Hong Kong] Deferred annuities help build retirement savings flexibly and steadily. Plan early for the next phase of life.

Hong Kong is a city of longevity. Working people who want to enjoy a high-quality lifestyle of their choice after retirement should start financial planning while they are still young, so as to help safeguard the quality of their retirement life. At present, many people consider purchasing a Qualifying Deferred Annuity Policy (also known as a tax-deductible annuity) as a retirement planning tool. In addition to enjoying tax deductions during the contribution period, they can also make use of time to accumulate and grow their wealth.

Prudential “Pruretirement Deferred Annuity Plan”（Prudential “Pruretirement Deferred Annuity Plan”）offers a relatively high guaranteed return ratio¹, providing policyholders with a more stable annuity income, much like creating one’s own retirement income stream. In addition, the plan offers “Smart Care” protection, unemployment support protection, and more, catering more thoughtfully and flexibly to the personal needs of policyholders.

When purchasing a tax-deductible deferred annuity, policyholders should pay particular attention to whether the annuity can provide an ideal and stable return, such as the internal rate of return (IRR) and the stability of returns, so as to ensure a sound retirement financial plan. Using annual premium payments as an example, Prudential "Retirement Treasure" offers a guaranteed internal rate of return at maturity ranging from 1.01% to 1.73% per annum², while the total internal rate of return can reach as high as 3.05% to 3.83% per annum². The guaranteed monthly annuity ratio under this plan is relatively high, accounting for up to 84% of the total guaranteed and non-guaranteed monthly annuity (this ratio varies depending on the combination of premium payment period, accumulation period and annuity period), enabling policyholders to have greater certainty over the final annuity amount, and to plan their "second life" with a more stable and solid retirement financial safeguard, making the most of their grand plans and dreams.

Many people underestimate how long they will live and how much they will need to spend after retirement, assuming they can “sort it out when they are old”. In 2022, the average life expectancy for local men and women was 80.7 and 86.8 years respectively³. If retirement finances are miscalculated, rising inflation and living costs in later life may make savings insufficient, affecting one’s quality of life. That is why early planning is important, as it helps you realise your retirement goals later on and achieve financial independence.

Prudential “PruRetirement” has a broad range of eligible entry ages, from 21 to 75 years old (attained age). In other words, university graduates can join once they enter the workforce, giving them more time to accumulate and grow wealth, so that they can have a stable retirement income and protection in the future.

In addition, the plan offers a wide range of options, with different premium payment terms, accumulation periods and annuity periods, making a total of 8 combinations. Policyholders can choose to pay premiums over 5 or 10 years, depending on age, financial capability, expected retirement expenses and tax-deductibility needs, and allow the premiums to accumulate for 5, 10, 15, 20 or 30 years. Prudential Hong Kong Limited (“Prudential”) will provide a monthly annuity for up to 10 or 20 years according to the customer’s choice, effectively creating a self-made monthly salary.

You may refer to the following example⁴. Amy used to work in an office role, but later stepped out of the routine and actively explored the possibility of turning her interest into a career. She is now a dog-loving KOL, and her dream is to retire early and share more love with dogs in need. Amy understands that if she wants to live the life she loves after retirement, she needs to plan early, so at the age of 31 she took out Prudential “PruRetirement”. By purchasing a deferred annuity, she hopes to give her savings more time to benefit from the power of compounding, increasing the policy value and allowing her to enjoy a stable annuity income after retirement.

Amy plans to retire early at 51 and start receiving annuity payments, so she chose to pay premiums over 10 years, paying US$8,000 annually, with total premiums of US$80,000 and a policy accumulation period of 20 years. From age 51, she can receive a guaranteed annuity income of US$903 per month for 10 consecutive years, plus a non-guaranteed monthly annuity of US$373. In addition, she will receive a non-guaranteed terminal bonus of US$17,408 at the end of the annuity period, bringing the total amount received to about 2.1 times the premiums paid. Furthermore, during the premium payment period, Amy can enjoy a tax deduction of up to HK$60,000 on eligible premiums under Prudential “PruRetirement”⁵. Assuming she is subject to a salaries tax rate of 17%, this would mean tax savings of HK$10,200 per year⁵. She believes that taking out a tax-deductible annuity is a win-win decision, as it allows her to save and reduce tax at the same time.

Life is unpredictable. Illness or accidents may upend even the best-laid plans. Some people worry that, after buying an annuity, they may become unable to manage their assets properly in old age due to illness and need to entrust them to family members to care for them. Prudential “PruRetirement Deferred Annuity Plan” offers the “Support for Loved Ones Benefit”, which is unique in the deferred annuity market. If the policyholder unfortunately becomes mentally or physically incapacitated as a result of any covered illness, the plan can provide the designated family member previously appointed by the policyholder with a benefit equal to the surrender value, helping both the policyholder and their family through difficult times. The procedure is simple, with no need to go through complicated legal processes, allowing family members to focus more fully on caring for them.

Using dementia as an example, one in every 10 Hong Kong residents aged 70 or above has dementia⁷, and among those aged 85 or above, one in every three is affected, reflecting how common the disease is. If the policyholder develops dementia and becomes mentally incapacitated, they may need to hire a domestic helper for round-the-clock care, as well as take long-term medication and attend regular follow-up consultations. At that point, the appointed family member may apply for and receive the Support for Loved Ones Benefit, equal to the surrender value, to meet various needs and ease financial pressure. Once the relevant claim is approved, the policy will also be terminated.

If the insured person unfortunately has an accident during the accumulation period and dies as a result of that accident within 90 days, the “Accidental Death Extra Benefit” will be payable together with the death benefit. The death benefit is at least 105% of the total premiums paid, after deducting the total amount of any monthly annuity payments already made. The accidental death extra benefit is 50% of the total premiums paid, subject to a maximum of USD125,000.

In addition, the caring protection provided by Prudential “PruRetirement Deferred Annuity Plan” also includes unemployment support benefit. After the COVID-19 pandemic, many employees have come to appreciate how quickly the economic outlook can change. For policyholders aged 21 to 65 under this plan, if they become unemployed for more than 30 consecutive days after the policy has been in force for 180 days, they may apply for the relevant benefit and defer premium payments for up to one year to help them through difficult times.

As deferred annuities are a long-term savings product, many working adults consider the insurer’s reputation and financial position when purchasing one, including choosing a reliable insurer. Prudential Group has more than 175 years of experience, has been rooted in Hong Kong for 59 years, and serves more than 1.3 million customers locally. Prudential ranked first in market share for financial adviser business in the first three quarters of 2023, making it one of the three major insurers in Hong Kong⁸.

From now until 30 June 2024, purchase Prudential “Pruretirement” and enjoy 20% first-year premium cashback. If the policyholder takes out another qualifying deferred annuity policy as the insured under any eligible deferred annuity policy, an additional 10% offer can be unlocked, bringing the total first-year premium cashback to up to 30%.

Prudential “Pruretirement” Deferred Annuity Plan

^If you apply on or before 30 June 2024, you can enjoy a 20% first-year premium rebate. If the applicant is an existing policyholder of another eligible deferred annuity plan, an extra 10% first-year premium rebate can be enjoyed, for a total first-year premium rebate of up to 30%. Terms and conditions apply.

The above products and offers are subject to terms and conditions. The premium rebate amount is not eligible for tax deduction. For details of the products, offers and tax deduction, please refer to the relevant product brochure and leaflet. For details, please visit：https://bit.ly/4dOouq2

Note:

1. The guaranteed monthly annuity percentage of this plan is relatively high, accounting for up to 84% of the total guaranteed and non-guaranteed monthly annuity (this percentage varies depending on different combinations of premium payment term, accumulation period and annuity period)
2. The figures reflect the internal rate of return for premiums paid annually. All internal rates of return above are rounded to the nearest 2 decimal places for illustrative purposes only, and we assume that: (i) all premiums are paid in full before the due date, excluding premium levy; (ii) the premium payment mode remains unchanged throughout the policy term; (iii) the policy has never made any claim for death benefit / SmartCare Protection, has never been partially surrendered, and has no policy loan; (iv) all guaranteed monthly annuity and non-guaranteed monthly annuity are withdrawn immediately after payment; and (v) the total internal rate of return includes non-guaranteed amounts, comprising non-guaranteed monthly annuity and non-guaranteed terminal bonus. The expected non-guaranteed amounts are estimated according to our bonus rates, which are determined based on current assumptions such as investment returns, claims and persistency rates, as well as our participating / bonus declaration philosophy, and are not guaranteed. The actual amounts payable may change from time to time and may be higher or lower than the values shown in the above example. Different premium payment terms, accumulation periods and annuity periods will result in different internal rates of return. You should choose the most suitable term combination according to your own financial situation and retirement needs.
3. Source: Census and Statistics Department - Demographic characteristics
4. This example and all values mentioned herein are for illustrative purposes only. The age mentioned in this example refers to “next birthday age”. Amy is a non-smoker. Assuming that in the above example Amy will withdraw the relevant amount when Prudential starts paying the monthly annuity, and there is no policy loan. The terminal bonus and non-guaranteed monthly annuity distributed by Prudential are not guaranteed, and Prudential may review and adjust them at its sole discretion. The actual terminal bonus and non-guaranteed monthly annuity amounts may be higher or lower than the values shown in the above example. Under persistently unfavourable market conditions, the actual amount of the non-guaranteed monthly annuity may be much lower than shown in this example. For details, you may refer to the Prudential “PRUretire Deferred Annuity Plan” product brochure, policy documents and insurance proposal. Unless otherwise specified, all figures are rounded to the nearest whole number for reference.
5. This is the maximum annual deductible amount per taxpayer for eligible deferred annuity premiums and MPF tax-deductible voluntary contributions. For more information on tax deductions, please contact the Inland Revenue Department of the Hong Kong Special Administrative Region.
6. The statement that the market is “exclusive” is based on the comparison results of eligible deferred annuities from major insurance companies in Hong Kong as of January 2024.
7. Source: Dementia
8. Source: Provisional statistics on Hong Kong insurance business for the first three quarters of 2023 from the Insurance Authority of Hong Kong

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