Hong Kong Mortgage Corporation to offer public annuity scheme for retirees

If scheme is approved, it will be launched within 12 to 18 months and will involve an investment of less than HK$300,000

PUBLISHED : Monday, 27 February, 2017, 6:33pm
UPDATED : Monday, 27 February, 2017, 11:03pm

The government-owned Hong Kong Mortgage Corporation will offer a public annuity scheme as early as next year to allow retirees to invest a minimum lump sum of below HK$300,000 in exchange for a stable monthly income until their death.

HKMC chief executive Raymond Li Ling-cheung said on Monday the proposed plan would go to the board for approval before the end of June. If approved, it will be launched within 12 to 18 months.

“This public annuity scheme is not a welfare measure but an investment product tailor made for the retiree who has a lump sum of money but doesn’t know how to invest it themselves,” he said.

“The annuity products now available in the market are usually long-term savings plans where young people contribute a certain sum of money each month for 10 or 20 years and then get their annuity payment every month after their retirement.”

Li said there was a lack of products that accept one-off lump sum payments for the annuity so the HKMC was planning to provide this product to fill the gap.

He explained that overseas markets had more annuity products as people didn’t live as long as those in Hong Kong. “Hence the risks for insurance companies to provide annuity products [in Hong Kong] are high. That’s why there are few annuity products in Hong Kong,” Li said.

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Li said among the seven million people in Hong Kong, there are more than one million who have already reached the retirement age of 65. In 2035, 24 per cent of Hong Kong’s population is expected to be over 65, double the current proportion.

The age and minimum investment amount for the scheme has not yet been fixed, but Li said the threshold will be lower than HK$300,000 to allow more retirees to apply for the products.

Li quoted analyst estimates showing that for a HK$1 million upfront payment to the Mortgage Corporation and an annualised return rate of 3 per cent, a 65-year-old man was expected to get about HK$4,200 a month until death. The payout ratio would be different depending on age and sex.

Henry Shin, chief executive of Convoy Financial Services, said the 3 per cent guaranteed rate generally offered by private plans is only possible when the premium accumulates and grows over a long period of time. He raised concerns as to whether a public scheme could offer a rate higher than the market when insurers expected to receive a return shortly after paying out a lump sum.

Li hoped the scheme would attract more than 10,000 applicants when it is launched.

By comparison, the reverse mortgage scheme which allows elderly residents to use their property as collateral for a loan for their retirement only has about 1,600 applicants.