Author
Bowtie Team
Updated on
2025-06-13
Disclaimer: This article is translated with the assistance of AI.
Dreaming of a steady monthly income after retirement, like a civil servant’s perk? Dive into whether Hong Kong annuities deliver with expert insights from Ray Lee, former chairman of the Hong Kong Institute of Financial Planners, brought to you by Bowtie.
What is a Hong Kong Annuity?
Hong Kong Annuity was launched in July 2018 , as Hong Kong’s first public annuity plan. It offers an additional financial option for local seniors aged 60 and above, allowing policyholders to receive a monthly annuity income until the end of their lives. According to the official calculator, a 60 -year-old woman investing HK$1,000,000 in the Hong Kong Annuity would receive a guaranteed monthly annuity of HK$4,700 , paid out until passing away. While the idea of “steady monthly income” sounds straightforward, it’s been surrounded by ongoing debates, likely due to insufficient financial education on the topic.
Common Myths About Annuity Return Rates
Many people confuse the payout rate with the return rate. Taking the example of the 60 -year-old woman, the payout rate is 5.64% ( HK$4,700 monthly annuity x 12 / HK$1,000,000 ). So, how do you calculate the return rate for the Hong Kong Annuity?
According to information from the Investor and Financial Education Council , if you want an objective view of the annuity’s return, a common metric is the Internal Rate of Return ( IRR ). Based on calculations by the Mortgage Corporation, the internal return rate for the Hong Kong Annuity plan is approximately 4% .
However, don’t jump to conclusions and assume 4% is exactly what you’ll get from joining the Hong Kong Annuity plan. In reality, this is an estimate based on various assumptions, including average life expectancy. Your actual return depends on factors like the age you start the plan and how many months of guaranteed annuity income you receive, so each policyholder’s IRR could be lower, equal to, or higher than 4% . In short, it varies from person to person.
Continuing with the example of the 60 -year-old woman, here’s a reference for the corresponding internal return rates:
| Survival Age | IRR (Internal Rate of Return)* |
| 80 | 1.2% |
| 90 | 3.8% |
| 100 | 4.8% |
| 110 | 5.2% |
*Approximate and rounded
As you can see, the return rate for the Hong Kong Annuity is tied to lifespan, so it can vary for each applicant. But here’s the silver lining: everyone gets a form of “protection” that provides lifelong cash flow, ensuring you’re covered even if you live to be 120 .
What if you pass away earlier than expected—does that mean you’re out of luck? Not at all! The Hong Kong Annuity is an insurance product with a death benefit. If you’re successfully insured, the plan guarantees that you’ll receive at least 105% of the premiums paid in annuity income.
Suppose the policyholder passes away and the annuity income received so far hasn’t reached 105% of the premiums paid. In that case, the beneficiary can continue to receive the monthly guaranteed annuity until that threshold is met. Alternatively, the beneficiary could opt for a lump-sum death benefit, where the total amount (including previously received annuities) will be at least equal to the full premiums paid.
So, to drive the point home—Hong Kong Annuity is an insurance product designed to safeguard against the financial risks of a long life. It’s not meant for a straightforward comparison with other investment tools, but think of it as your reliable companion for those golden years.
The Benefits and Drawbacks of Hong Kong Annuities
There’s no such thing as a free lunch, and there’s no perfect product in the world. Hong Kong annuities come with their own benefits and drawbacks, which we’ll analyze one by one based on their features.
Features ( 1 ): Immediate Enjoyment
Hong Kong annuities are immediate annuities, so once you buy one, you can start receiving payments the next month without any accumulation period. However, if you want to get your principal back after purchasing, the surrender amount plus any annuity income you’ve received might end up being less than what you’ve paid in premiums. In simple terms, there’s a surrender charge, so it can feel a bit like “easy in, hard out.” It’s wise to budget carefully before signing up.
Features ( 2 ): Guaranteed Income
One of the biggest advantages of Hong Kong annuities is the “guaranteed return,” where the annuity amount stays constant, eliminating the uncertainty of non-guaranteed returns. However, because the amount doesn’t change, it might not effectively combat inflation over your long retirement years. So, when planning your budget, don’t forget to factor in the impact of inflation.
Features ( 3 ): Long-Term Payouts
Generally, annuities can be classified based on the income period as either “term annuities” or “lifetime annuities.”
A “term annuity” pays out over a specified period, like 10 or 20 years. A “lifetime annuity,” on the other hand, depends on the policy terms and can be divided into two types: one that continues until death, or as per some insurers’ terms, up to a certain age like 100, after which it’s no longer calculated. Hong Kong annuities fall into the first category—they’re truly lifelong with “payments for as long as you live.”
Compared to annuities from private insurers, which often have more options for death benefits—like passing it on to family members—Hong Kong annuities might seem a bit more straightforward. So, when choosing a product, take a closer look based on your personal needs.
Applications of Hong Kong Annuities and Insights for Insurance Planning
Hong Kong annuities are a valuable financial tool for retirees, offering unique functions and a steady stream of lifelong cash flow. However, they alone can’t cover all your retirement needs. Beyond the issues we’ve mentioned, like inflation and wealth inheritance, health problems become more likely as you age, and sudden medical expenses might not be covered by annuity income. So, in addition to this insurance for “longevity,” don’t forget to secure a suitable Medical Insurance to build a more comprehensive retirement plan!
The following content is provided by Bowtie and is not related to the author of this article.
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