Choosing an annuity in Hong Kong: qualifying deferred annuity (QDAP) tax deductions, the HKMC Annuity Plan and private annuities

An annuity is a long term insurance policy that the policyholder buys from an insurer with a single premium or instalments and that pays a regular income from a specified age or for a specified period; its core purpose is to address the retirement income risk that comes with living longer. In Hong Kong, three types are commonly discussed: qualifying deferred annuity policies (QDAP), certified by the Insurance Authority (IA) and eligible for tax deductions; the HKMC Annuity Plan launched by HKMC Annuity Limited; and other private annuities. What separates them is not "which pays more" but the degree of guarantee, eligibility thresholds and tax requirements.

Jurisdiction: Hong Kong. For foreign exchange, tax and CRS questions concerning mainland residents, seek professional advice in your own jurisdiction. This guide does not compare annuity rates or internal rates of return for specific products.

Four basic types of annuity

The IA consumer education website classifies annuities along two dimensions: when payments start and how long they last. Once these two dimensions are clear, any product on the market can be placed in the same table.

The IA reminds readers that "most annuity products' annuity payments include a non-guaranteed portion", and the final amount may be higher or lower than the non-guaranteed figures shown in the benefit illustration at purchase; some products have a lower guaranteed portion and a higher total expected return, with correspondingly higher risk. Annuities are long term insurance, and "early surrender or termination of the policy may result in financial loss"; the surrender value in the early years may be far below the premiums paid (source: IA consumer education website, "Annuity" page, last revised 29 August 2022).

Qualifying deferred annuities (QDAP): certification conditions

A QDAP is a deferred annuity product that complies with the IA's Guideline on Qualifying Deferred Annuity Policy (GL19) and has been certified by the IA. Since 1 April 2019 the government has allowed taxpayers who pay such premiums to claim a tax deduction (IFEC, 27 March 2019). The certification conditions are:

Two points need emphasis. First, "certification" only means the product structure qualifies for the tax deduction; it does not mean the IA gives any assurance on returns, the insurer or suitability. Second, a QDAP can also include non-guaranteed annuity payments. The IFEC notes that the non-guaranteed part is affected by factors such as investment returns, claims and profits, and can be zero in extreme cases. When comparing QDAPs, compare the "IRR on guaranteed benefits only" and the "IRR including non-guaranteed benefits" separately.

QDAP tax deduction rules

The deduction rules are set out in the Inland Revenue Department (IRD) guidance on qualifying annuity premiums and tax deductible voluntary contributions. The key points are:

1. Cap: the deduction is the total of qualifying annuity premiums and MPF tax deductible voluntary contributions (TVC) actually paid, or HK$60,000, whichever is lower.
2. Order of deduction: where there are both TVC and annuity premiums, TVC is deducted first, and annuity premiums can only use what remains of the HK$60,000.
3. Married couples: each taxpayer has a separate HK$60,000 cap, so a couple can deduct up to HK$120,000 in total; a spouse with no assessable income cannot claim.
4. Policies for a spouse: the annuitant must hold a Hong Kong identity card at any time during the year of assessment; premiums paid after divorce are no longer deductible.
5. Cancellation within the cooling-off period: if the policy is cancelled within the cooling-off period, the deductible amount must be reduced by the premiums refunded.
6. Year of assessment: only premiums actually paid in that year of assessment are deductible.

Hong Kong salaries tax has no general deduction for life insurance premiums; among annuities, only QDAP premiums are deductible (IRD salaries tax computation 2026/27). How much tax a deduction saves depends on the individual's marginal rate, and this site does not calculate it.

The HKMC Annuity Plan: a public whole-life immediate annuity

The HKMC Annuity Plan was launched in July 2018 by HKMC Annuity Limited, a subsidiary of The Hong Kong Mortgage Corporation Limited, as a government-led public life annuity. According to education materials produced jointly by the IFEC and the IA:

The plan's conditions have been adjusted several times. A Legislative Council reply on 12 May 2021 stated that the premium cap per person was raised from HK$1 million to HK$3 million in May 2019 and the minimum entry age lowered from 65 to 60 in February 2020; the IFEC education page currently shows a maximum of HK$5,000,000. As conditions may change again, rely on HKMC Annuity Limited's current announcements before applying.

Private annuities: reading the guaranteed and non-guaranteed parts

Private annuities are designed by individual insurers and vary widely in structure. When reading a benefit illustration, check the following in order:

1. Share of guaranteed annuity payments: first see how much is paid each year, and for how many years, counting the guaranteed part only; then look at the non-guaranteed part.
2. Source of the non-guaranteed part: participating annuities depend on bonuses declared by the insurer and are directly linked to fulfilment ratios; past bonuses do not indicate future ones.
3. Surrender value curve: check the first-year surrender value as a percentage of premiums paid in the product brochure, and the guaranteed cash value in each year of the accumulation period.
4. Policy currency: a USD policy carries exchange rate risk for someone who lives in HKD or RMB, and the payout period often runs for more than ten years.
5. Death arrangements: what happens to the remaining annuity payments if the annuitant dies during the payout period (a lump sum to beneficiaries, continued payments or termination).
6. Whether it is a QDAP: only premiums for certified products can be deductible.

Three types of annuity compared

Notes for mainland readers

• Tax deductions require Hong Kong taxpayer status. The QDAP deduction is for taxpayers with assessable income in Hong Kong; mainland residents who do not pay tax in Hong Kong generally cannot claim it.
• The HKMC Annuity Plan requires a Hong Kong permanent identity card, so mainland visitors are not eligible.
• Annuity contracts fall within CRS reporting. The IRD lists "cash value insurance contracts and annuity contracts" as financial accounts; Mainland China has been a reportable jurisdiction since 1 July 2017, with first reporting and exchange from 2018. See Mainland visitors buying in Hong Kong.
• Foreign exchange controls. Public materials from the State Administration of Foreign Exchange state that foreign currency purchased by individuals in the mainland may not be used to buy life insurance or investment-type return or participating insurance; this site does not describe any route for moving funds out of the mainland.

Annuities suit people who need a stable retirement income and can accept having their money locked in for the long term; they usually do not suit people who may need the money in the near future. If you would like help applying this to your own circumstances, you can register your needs through the contact details on this site.