To encourage tax payers to plan and save for their retirement, the government introduced the Qualifying Deferred Annuity Policy (“QDAP”) in 2019. If a deferred annuity product satisfies the Insurance Authority (“IA”)’s criteria on premium, payment period, annuity income period, disclosures, etc., the insurer may register the product as a QDAP. The policyholders of QDAP can enjoy tax deductions on the premium.
The product certification by the IA increases public awareness and understanding on deferred annuities. However, given the complexity of deferred annuity products involving different time periods and amounts on premium payment, accumulation and annuity income, it is still difficult for consumers to compare the products in the market by themselves.
ence 10Life has collected data on many deferred annuity products in the market. Our actuaries have compared the guaranteed return, projected return, longevity coverage, early surrender coverage and early death coverage of the products, with the assumption that the policyholder is a male at age 45, paying premium for 10 years (or closest), and would start receiving annuity income at age 65. To help consumers decode the products, 10Life rates products designed for retirement according to the market benchmark, with the best in class awarded as “5 Star Product”.
You may find the full details from <GL19: Guideline on Qualifying Deferred Annuity Policy> issued by IA.
Premium paid for QDAP is tax deductible up to a limit of HK$60,000 per year. The actual tax amount saved would depend on your marginal tax rate. For example, based on the prevailing highest tax rate of 17%, you may save up to $10,200 payable tax per year from buying QDAP.
An annuity product aims to protect the retirement life of the insured in the financial aspect. As you age your risk tolerance generally decreases, hence you shall focus on the guaranteed return and the longevity coverage of the annuity product. Some annuity products present attractive projected returns, but the non-guaranteed part is dependent on multiple factors including the market environment, investment performance, dividend policy, etc. and your retirement plans could be seriously affected if the non-guaranteed income is not as expected.
Under current arrangements, early surrender of policy would not make the tax deductions recoverable by the IRD. However, if you cancel the policy during the cooling-off period and have your paid premium refunded, you would need to pay back any tax deductions made.