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Launched in July 2018, the “HKMC Annuity Plan” is the first public annuity spearheaded by the HKSAR government to offer senior citizens aged 65 or above with another financial management option. The HKMC Annuity Plan is a life annuity which offers monthly lifelong streams of guaranteed income to the annuitant. There are also other insurance companies in the market that are offering different types of annuity products.

Generally, annuity plans of the private sector offer more choices and consumers can purchase these plans when they are young to prepare for retirement. However, it should be noted that the annuity income of private annuity products is usually divided into two parts, namely “guaranteed” and “non-guaranteed”. As the name suggests, the non-guaranteed part is not guaranteed and in the worst case scenario, it could be zero. Furthermore, if the income period is too short, it may not achieve the objective of addressing the financial risks brought about by longevity. As such, apart from product features, consumers should consider their personal needs, as well as financial situation and risk tolerance before making a decision.

 

HKMC Annuity Plan vs. Private Annuity Products:

 Public annuity
(the HKMC Annuity Plan)
Private annuity products
Type of annuity Immediate life annuity Various types of annuity products available, including immediate, deferred, life annuity and annuity certain.
Insurance company HKMC Annuity Limited (a subsidiary of Hong Kong Mortgage Corporation Limited) Various insurance companies are offering annuity products
Eligibility Holders of Hong Kong permanent identity card aged 65 or above; health check not required Depending on the underwriting requirements of different insurance companies, health check is generally not required.
Policy currency HK$ Usually HK$ or US$
Premium contribution period Single premium, i.e. one-off payment One-off or by instalments (e.g. over 5 years, 10 years or even longer)
Premiums Minimum: HK$ 50,000
Maximum: HK$ 3,000,000
Various insurance companies set different requirements
Income period Whole of life (guaranteed income amount of no less than 105% of premiums paid) Lifelong or fixed period
Annuity income Full guaranteed monthly annuity payments Depending on the product selected, annuity income can be distributed monthly, quarterly, or annually. The amount often comprises two parts, namely “guaranteed” and “non-guaranteed”. Some annuity products allow the policyholder to keep annuity income as a rollover to enjoy the interest at a rate announced by the insurance company from time to time. But the interest rate is often not guaranteed and can be changed by the insurance company at any time.
Cancellation Early surrender or termination of the annuity plan may incur significant financial loss, and the surrender value could be zero, or much lower than the total amount of the premiums paid.
Death benefits If the annuitant passes away during the guaranteed period, the beneficiary can continue to receive the remaining unpaid guaranteed monthly annuity payouts until the total adds up to 105% of the premiums paid. Alternatively, the beneficiary can choose to immediately receive a lump sum death benefit equivalent to the higher of the guaranteed cash value of the policy or 100% of the premium paid less the cumulative guaranteed monthly annuity payments paid. There will not be any death benefit after the guaranteed period. If the annuitant passes away during the premium contribution period, the beneficiary can usually receive no less than the paid premium in full as death benefit. If the annuitant passes away during the income period, different death benefit arrangements or options would be available under different plans.
Cooling-off period The policy can be cancelled during the cooling-off period
Tax incentives Nil The premiums of eligible deferred annuity products are tax-deductible (details to be announced)

 

 

 

28 December 2018