To encourage tax payers to plan and save for 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 and disclosures, the insurance company may register the product as a QDAP.
The policyholder of QDAP can enjoy tax deductions on the premium. Both the product break-even year and the rate of return can be enhanced if tax savings are considered, particularly for policyholders with high marginal tax rates.
10Life has collected data on different QDAP products in the market. Based on the assumptions that the policyholder is a male at age 45, paying premium for 5 years (or nearest), 10Life actuaries have compared the guaranteed return, projected return and early surrender coverage, and also calculated the impact of tax deductions to the product return. 10Life rates products according to the market benchmark, with the best in class awarded as “5 Star Product”.
QDAP will accumulate the policyholder’s savings and convert into a stable income in the future. 10Life compares the returns of annuity products using Internal Rate of Return (IRR). Simply put, IRR can be understood as the annualised rate of return on investment.
According to the Insurance Authority, all QDAP product brochures must use a 45-year-old non-smoking male policyholder as an example to disclose the product IRRs. In addition, consumers can refer to the product brochure to understand the IRRs of the product under different payment periods, annuity start age and income periods.
IRRs can be guaranteed or projected. The guaranteed IRR is the return contractually guaranteed by the insurance company to the policyholder, while the projected IRR includes guaranteed and non-guaranteed returns. Non-guaranteed returns are affected by multiple factors such as the insurance company’s investment performance, profit sharing policy and the general economic environment, hence it is difficult to predict.