Author
Bowtie Team
Updated on
2025-05-31
Disclaimer: This article is translated with the assistance of AI.
Taxpayers who purchase “qualified deferred annuity policies” can apply for tax deductions, with a total annual deduction of HK$60,000. How should you choose a deferred annuity? Which product has high returns? The Bowtie Insurance team discusses with you.
- * Unless otherwise specified, “deferred annuity” in this article refers to “Qualifying Deferred Annuity Policy”.
What is a Deferred Annuity?
A deferred annuity converts the policyholder’s savings into future income to address the financial risks associated with longevity. Due to an aging population, the government offers tax incentives to taxpayers who purchase a “Qualifying Deferred Annuity Policy” (QDAP) to encourage savings.
What conditions must a Qualifying Deferred Annuity Policy meet?
Deferred annuity products must meet a series of conditions outlined in the guidelines issued by the Insurance Authority, including:
- Total premium of at least HK$180,000, with a contribution period of at least 5 years;
- Annuity payout period of at least 10 years;
- The annuity recipient must be at least 50 years old to start receiving payments; and
- Compliance with the following disclosure requirements:
- The product’s internal rate of return must be clearly stated in the sales brochure and relevant communications with the policyholder;
- Guaranteed annuity amounts and variable annuity amounts (if applicable) must be clearly disclosed;
- Premiums for additional coverage must be clearly separated from the Qualifying Deferred Annuity Policy premiums.
You can check the list of Qualifying Deferred Annuity products on the Insurance Authority website, Qualifying Deferred Annuity products list .
How Much Tax Deduction is Available for Deferred Annuity?
The insurance company will issue an annual statement within 40 days after the end of each tax year (i.e., March 31), outlining the amount of premiums paid for the Qualifying Deferred Annuity during that tax year for the policyholder.
Taxpayers can claim a tax deduction for their Qualifying Deferred Annuity premiums, with a maximum annual limit of HK$60,000. Based on the current highest tax rate of 17%, this could save up to HK$10,200 in taxes per year.
However, note that this maximum deduction limit applies to the combined total of Qualifying Deferred Annuity premiums and voluntary MPF contributions. Additionally, premiums for additional coverage under a Qualifying Deferred Annuity do not qualify for tax deductions.
For more details on tax deductions and the tax return filing process, please call the Inland Revenue Department’s hotline at 187 8088 or visit the Inland Revenue Department website .
Example of Annuity Tax Deduction
For the 2024/25 tax year, for example, the higher the income, the more tax can be saved with the same $60,000 deduction amount.
| Single Person | Married Person with Two Children, Spouse Not Working | |
| Monthly Income | $30,000 (Annual income $360,000) |
$60,000 (Annual income $720,000) |
| Original Tax Payable | $17,700 | $34,700 |
| Qualifying Deferred Annuity Policy Premium | $60,000 | $60,000 |
| New Tax Payable | $9,000 | $24,500 |
| Annual Tax Savings | $8,700 | $10,200 |
How to Choose a Deferred Annuity? Guidance from the Insurance Authority
Insurance Authority Website suggests that consumers consider the following 6 points before purchasing:
- Understand the Policy Structure: The length of the contribution period may affect the accumulation time of the annuity. Additionally, the length of the annuity payout period will impact the amount received during payout.
- Assess Your Needs: This includes your ability to make long-term contributions, liquidity needs for cash, and whether the contribution period (pre-retirement) and annuity payout period (post-retirement) align with your life plans.
- Compare Internal Rate of Return (IRR): A higher internal rate of return generally means a greater return on the policy.
- Refer to Fulfillment Ratio: Most deferred annuities include a “non-guaranteed” portion in their returns, so the actual non-guaranteed amount you ultimately receive could be higher or lower than what was mentioned in the benefit illustration document.
- Pay Attention to Surrender Value: Early surrender or termination of the policy may lead to financial losses, especially in the initial stages, where the surrender amount received could be significantly lower than the premiums paid.
- Use the “Annuity Selection Tool”: Through the Insurance Authority online tool “Annuity Selection Tool” , users can answer 5 questions to filter products that match their preferences and obtain important product information at the same time.
Deferred Annuity Return Comparison Table
As of September 23, 2024, according to the Insurance Authority’s QDAP Full List , the top 3 products with the highest total internal rate of return (including non-guaranteed returns) are as follows:
| Insurance Company | Product Name | Total Internal Rate of Return | Policy Currency | |
| Minimum | Maximum | |||
| Hong Kong Life Insurance Limited | Retire-at-Ease II Deferred Annuity Plan | 1.93% | 4.64% | HKD/USD |
| Hang Seng Insurance Limited | FortuneLife Deferred Annuity Life Insurance Plan | 2.6% | 4.35% | HKD/RMB/USD |
| Chow Tai Fook Life Insurance Limited | Prosperous Deferred Annuity Plan 2 | 3.28% | 4.32% | USD |
- * Internal rate of return is based on the assumption of a 45-year-old non-smoking male policyholder, showing the internal rate of return for both guaranteed and total returns, with data provided by the insurance company and not independently verified. For products without a 45-year-old option, the internal rate of return is calculated based on the highest age in the product options to provide a relatively conservative estimate. For whole life policies, the internal rate of return is calculated using a 30-year annuity period. The internal rate of return may vary depending on factors such as policy currency, premium payment period, premium payment method, annuity (income) payout period, and age at which annuity payments begin. Therefore, the internal rate of return is for reference only and does not indicate future performance. Additionally, the projected total internal rate of return (which includes non-guaranteed components) is not guaranteed and may be changed by the insurance company from time to time. The actual total internal rate of return may be higher or lower than the values shown on the page. Please consult the relevant insurance company before applying for or purchasing any insurance product. The internal rates of return shown assume no cash withdrawals or policy loans throughout the policy period and that all premiums are fully paid at maturity. The purpose of purchasing an annuity is to help the policyholder discipline the use of retirement savings to address the financial risks of longevity. When choosing a QDAP, individuals should not compare returns across policies solely and should consider the features of various policies as well as assess personal needs.
Drawbacks of Deferred Annuity: Surrender Penalties
As of September 23, 2024, according to the Insurance Authority’s QDAP Full List , if unfortunately a surrender is needed in the first year, the surrender amount may be less than 14% of the annual premium paid.
Deferred Annuity Calculator
You can use the one created by the Inland Revenue Department Tax Calculator to calculate and compare the difference in tax payable before and after subscribing to a qualified deferred annuity.
More 2024/25 Tax Filing Strategies :
- Budget Information: Budget Cheat Sheet ｜ Tax Refund Arrangements
- Tax Filing Information: Tax Filing ｜ Online Tax Filing ｜ Tax Calculator ｜ First-Time Tax Filing Guide ｜ Self-Employed / Freelance Tax Filing ｜ Departure Tax Clearance
- Tax Payment Information: When to Pay Taxes ｜ Late Tax Payment ｜ Personal Income Tax ｜ Salaries Tax ｜ Profits Tax
- Tax Exemption Strategies: Personal Tax Allowance Calculation ｜ Child Tax Allowance ｜ Parent Tax Allowance
- Tax Deduction Strategies: Tax Deduction Trio ｜ MPF Tax Deduction ｜ Tax-Deductible Annuity ｜ Mortgage Tax Deduction ｜ Rent Tax Deduction
- Voluntary Health Insurance Tax Deduction: Voluntary Health Insurance Tax Deduction Guide ｜ Voluntary Health Insurance Tax Deduction Examples ｜ Voluntary Health Insurance Tax Deduction Application ｜ Helping Parents Buy Voluntary Health Insurance
- Company Tax Filing: Company Tax Filing
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