Hong Kong's state-funded pension scheme

Hong Kong’s public annuity plan set to raise awareness of the need for pension investment, expert says

PUBLISHED : Saturday, 14 July, 2018, 11:01am
UPDATED : Saturday, 14 July, 2018, 11:22am

The Hong Kong government-backed HK$10 billion (US$1.27 billion) public annuity scheme is set to boost public awareness of the need for pension investment, according to Victor Yip, chief operating officer and chief actuary of MassMutual Asia, one of the major providers of pension products in the city.

Under the annuity plan launched Monday by the Hong Kong Mortgage Corporation, residents will be guaranteed a monthly fixed return after investing a lump sum from a threshold of HK$50,000 to HK$1 million upon reaching 65.

Men can receive a monthly payout ranging from HK$290 to HK$5,800 and women HK$265 to HK$5,300 by opting into the lifetime plan, with roughly 15 years needed for investors to gain the return.

MassMutual shrugged off concerns raised by some critics that the public annuity plan may compete with privately-run pension plans.

“The public plan could pave the way for deferred annuities by promoting annuity investing know-how,” said Yip.

MassMutual Asia’s revenue from annuity premiums jumped 30 per in the first quarter and is expected to remain in an uptrend for the whole year, according to Jeanne Sau, chief marketing officer at the insurer.

“The latest scheme brought annuity to the view of the public, and more youth have started to consider retirement plans at an early age,” she said.

“Before the government pushed the annuity plan, we had to explain more about what an annuity is,” she added.

The privately run deferred annuities scheme – usually offered by insurance companies in the city – allows investors to pay a monthly premium for 10 years or longer. The scheme enables policyholders to receive stable monthly payments normally after 65.

To encourage Hongkongers to save for retirement, the government proposed a tax deduction on deferred annuities in this year’s fiscal budget.

Hong Kong pushes annuity plan and tax break as part of move to get residents saving for retirement

However, the public should beware that not all deferred annuity products may quality for the tax break, Sau said.

The tax reduction would only apply to investors of deferred annuity products with a total premium of at least HK$180,000, and a minimum payment period of five years. Residents would be eligible for a tax break of up to HK$36,000 per year, with the result that an individual’s chargeable income would drop by the same amount.

A lift in the cap is under consultation, wrote the city’s Financial Secretary Chan Mo-po in his personal blog on Monday.

The government will announce details about the tax incentive for the deferred annuity products later this year. Official registration for the annuity scheme will begin on July 19.

The Hong Kong government is encouraging the public to be bettered prepared for retirement as demographic trends point to a rapidly ageing population, where a third of residents are predicted to be aged 65 or over by 2041.

Hong Kong has climbed to the top of the longevity rankings among major cities globally, with men expected to live to 81.32 years, while women are expected to reach 87.34 years, according to a report by Japan’s Ministry of Health, Labour and Welfare. Japan’s men and women came in second, with a life expectancy of 80.98 and 87.14 years respectively, according to the 2017 study.

Hongkongers top life expectancy rankings worldwide for second year in a row

The public annuity scheme is part of the government’s plan to cope with the ageing problem by “helping them turn cash lump sums into lifelong streams of fixed monthly income to better enjoy the rest of their lives”, Chan said in April.