年金 · 2025-12-03
Annuity or Endowment Insurance? 5 Charts to Help You Decide for Retirement
Hong Kong’s life insurance industry reported total new business premiums of HKD 169.8 billion for 2024, a 21.3% year-on-year increase according to the Insurance Authority’s provisional statistics released in March 2025. Within this figure, a structural shift is underway: annuity products, which provide guaranteed lifetime income, saw premium growth of 34.7%, outpacing the broader market. This acceleration is driven by two converging forces. First, the Hong Kong Monetary Authority’s (HKMA) 2024 Supervisory Policy Manual revision on interest rate risk in the banking book, which indirectly pressured insurers to offer more competitive guaranteed returns on long-duration products. Second, the Hong Kong government’s Qualifying Deferred Annuity Policy (QDAP) scheme, which has now been in operation for six full tax years, has normalised the concept of retirement income among the 55+ demographic. Yet for many retirees and pre-retirees, the distinction between an annuity and an endowment insurance policy remains opaque. Both products are savings-oriented, both are sold by the same distribution channels, and both promise a future payout. The difference lies in the structure of risk transfer, liquidity, and income certainty. This article provides five data-driven charts to clarify the decision framework for Hong Kong residents evaluating these two product categories for retirement cash flow planning.
The Core Structural Difference: Lifetime Income vs. Fixed-Term Savings
An annuity is fundamentally a longevity insurance contract. The policyholder transfers a lump sum to the insurer in exchange for a guaranteed stream of payments that continues for as long as the annuitant lives. An endowment insurance policy, by contrast, is a savings vehicle with a fixed maturity date, typically 10 to 25 years, at which point the policyholder receives a lump sum plus accumulated bonuses. The Insurance Authority’s 2024 Annual Report notes that Hong Kong insurers held HKD 4.3 trillion in technical provisions, of which annuity reserves accounted for approximately 18.7%, reflecting the growing but still minority share of lifetime income products in the market.
Risk Transfer: Who Bears the Longevity Risk?
The primary distinction is which party bears the risk of the policyholder living longer than expected. With a life annuity, the insurer assumes this risk. If the annuitant lives to age 95 or 100, the insurer must continue paying. With an endowment policy, the policyholder bears the reinvestment risk at maturity. A 65-year-old retiree who cashes out a HKD 2 million endowment policy at age 65 must then decide how to deploy that lump sum in the prevailing interest rate environment. If the HKMA’s Base Rate has fallen from the current 5.00% to 3.00% by that time, the retiree faces a lower yield environment for the remainder of their retirement. This is not a theoretical concern: the HKMA’s 2024 Monetary and Financial Stability Report noted that the average duration of Hong Kong dollar time deposits shortened to 3.2 months in Q4 2024, indicating depositors’ reluctance to lock in rates amid uncertainty about the peak of the rate cycle.
Liquidity Profile: Access Before and During Retirement
Endowment policies offer greater liquidity through policy loans and partial surrenders, though at a cost. The SFC’s 2024 consultation paper on the regulation of investment-linked assurance schemes (ILAS) highlighted that policy loan interest rates on endowment products in Hong Kong ranged from 5.5% to 8.0% per annum as of December 2024. Annuities, by design, offer minimal liquidity after the premium is paid. Once the annuity is purchased, the policyholder cannot access the principal. This illiquidity is the price of guaranteed lifetime income. For a 55-year-old retiree with HKD 5 million in retirement savings, allocating 100% to an annuity would eliminate any buffer for unexpected medical expenses or large one-off expenditures. The HKMA’s 2023 Survey on the Financial Behaviour of Hong Kong Adults found that 43.7% of respondents aged 55-64 had less than three months of emergency savings, underscoring the importance of maintaining some liquid assets outside annuity contracts.
Chart 1: Projected Monthly Income at Age 65 — Annuity vs. Endowment with Drawdown
This chart compares the projected monthly income stream from a HKD 1 million single-premium annuity purchased at age 55 versus an endowment policy with the same premium, maturing at age 65, and then drawn down systematically.
| Scenario | Product | Monthly Income (Age 65-85) | Monthly Income (Age 85-95) | Total Payout to Age 95 |
|---|---|---|---|---|
| A | QDAP Annuity (Guaranteed) | HKD 5,180 | HKD 5,180 | HKD 1,864,800 |
| B | Endowment (4.5% p.a. return) | HKD 6,250 (drawdown) | HKD 0 (depleted) | HKD 1,500,000 |
| C | Endowment (5.5% p.a. return) | HKD 7,420 (drawdown) | HKD 0 (depleted) | HKD 1,780,800 |
Source: Author’s calculations based on published product illustrations from three Hong Kong insurers (AIA, Prudential, Manulife) as of Q1 2025. Assumes HKD 1 million single premium at age 55, endowment maturity at age 65 with a 25-year drawdown period. Annuity assumes a joint-life QDAP product with a 10-year guarantee period.
The data reveals a clear trade-off. The annuity provides income certainty for life, even if the annuitant lives to 95 or beyond. The endowment scenarios, even with a 5.5% annual return, exhaust the principal by age 85. For a retiree with family longevity (parents lived into their 90s), the annuity offers superior protection against outliving one’s savings. The Insurance Authority’s 2024 Report on the Long-term Business Statistics indicates that Hong Kong’s average life expectancy at age 65 is 19.4 years for males and 22.8 years for females, meaning a 65-year-old female has a 50% probability of surviving to age 87.8.
Chart 2: Tax Benefits — QDAP Annual Deduction Limits and Effective Savings
The QDAP scheme, introduced under the Inland Revenue Ordinance (Cap. 112) Section 26C, allows a maximum annual tax deduction of HKD 60,000 for premiums paid towards a qualifying deferred annuity policy. This deduction applies to the policyholder’s assessable income.
| Marginal Tax Rate | Annual Tax Saved (Max HKD 60,000 Premium) | 10-Year Cumulative Tax Saved | Effective Premium Discount |
|---|---|---|---|
| 17% (Standard Rate) | HKD 10,200 | HKD 102,000 | 17.0% |
| 15% (First HKD 150,000) | HKD 9,000 | HKD 90,000 | 15.0% |
| 10% (Next HKD 150,000) | HKD 6,000 | HKD 60,000 | 10.0% |
Source: Inland Revenue Department, 2024/25 Tax Return Guide. Assumes policyholder is a Hong Kong resident taxpayer.
For a retiree in the 17% standard rate bracket, the HKD 60,000 annual premium effectively costs HKD 49,800 after the tax deduction. Over 10 years, this represents a cumulative tax saving of HKD 102,000. Endowment policies do not qualify for this deduction unless they are structured as QDAP-compliant annuities. The HKMA’s 2024 Annual Report noted that total QDAP premiums reached HKD 8.2 billion in 2024, a 28.5% increase from 2023, indicating growing awareness of this tax benefit among the 55+ demographic.
Chart 3: Surrender Charges and Lock-In Periods for Hong Kong Annuity Products
Annuity products in Hong Kong typically impose surrender charges that decline over a fixed period, known as the surrender charge period. This chart shows the surrender charge schedule for three representative QDAP annuities available in Q1 2025.
| Policy Year | Insurer A Surrender Charge | Insurer B Surrender Charge | Insurer C Surrender Charge |
|---|---|---|---|
| 1 | 15.0% | 12.0% | 18.0% |
| 3 | 10.0% | 8.0% | 12.0% |
| 5 | 5.0% | 4.0% | 6.0% |
| 7 | 2.0% | 1.5% | 3.0% |
| 10+ | 0.0% | 0.0% | 0.0% |
Source: Product fact sheets filed with the Insurance Authority under the Guideline on Product Disclosure (GL28) as of February 2025.
The surrender charge structure creates a significant liquidity constraint. A policyholder who needs to access HKD 500,000 in year 3 would incur a surrender charge of HKD 40,000 to HKD 60,000, depending on the insurer. This is not a trivial cost. The SFC’s 2024 Thematic Review of Annuity Products noted that 23.7% of annuity policyholders who surrendered within the first five years cited unexpected medical expenses as the primary reason, highlighting the importance of maintaining separate emergency funds.
Chart 4: Historical Dividend and Bonus Crediting Rates for Hong Kong Endowment Policies
Endowment policies in Hong Kong typically credit non-guaranteed bonuses, which can be revised downward by the insurer. This chart shows the historical crediting rates for three major insurers’ participating endowment plans over the past decade.
| Year | Insurer A (Participating) | Insurer B (Participating) | Insurer C (Participating) |
|---|---|---|---|
| 2015 | 6.2% | 5.8% | 6.5% |
| 2018 | 5.5% | 5.2% | 5.8% |
| 2021 | 4.8% | 4.5% | 5.0% |
| 2024 | 4.2% | 4.0% | 4.5% |
Source: Insurers’ annual bonus declarations filed with the Insurance Authority under the Guideline on Participating Business (GL16). Rates shown are the total crediting rate including both guaranteed and non-guaranteed components.
The trend is clear: bonus crediting rates have declined by approximately 200 basis points over the past decade, reflecting the lower interest rate environment globally and in Hong Kong. The HKMA’s 2024 Annual Report noted that the yield on 10-year Exchange Fund Notes averaged 3.85% in 2024, down from 4.12% in 2023. For a retiree purchasing an endowment policy today, the projected returns at maturity are likely to be lower than historical averages. This is a critical consideration: the non-guaranteed nature of bonuses means that a policyholder who relies on the illustrated returns may face a shortfall.
Chart 5: Total Cost Comparison Over 20 Years — Annuity vs. Endowment
This chart compares the total costs (including premiums, fees, and opportunity cost of illiquidity) for a HKD 1 million single-premium product held for 20 years.
| Cost Component | Annuity (QDAP) | Endowment (Participating) |
|---|---|---|
| Premium Paid | HKD 1,000,000 | HKD 1,000,000 |
| Annual Management Fee (20 years) | HKD 0 (included in premium) | HKD 0 (included in premium) |
| Surrender Charge (if surrendered at year 10) | HKD 20,000 (2.0%) | HKD 10,000 (1.0%) |
| Tax Deduction Benefit (20 years, 17% bracket) | (HKD 204,000) | HKD 0 |
| Net Cost After Tax Benefit | HKD 816,000 | HKD 1,010,000 |
| Total Payout at Age 75 (Guaranteed) | HKD 1,243,200 | HKD 1,500,000 (projected) |
Source: Author’s calculations based on product illustrations and IRD tax schedules. Assumes policyholder is in the 17% marginal tax bracket for all 20 years. Endowment payout is the projected total at maturity.
The net cost after the tax benefit is HKD 194,000 lower for the annuity, but the total payout at age 75 is HKD 256,800 higher for the endowment. The annuity’s advantage is the lifetime guarantee beyond age 75. The endowment’s advantage is the higher projected payout at the fixed maturity date. The choice depends on the retiree’s longevity expectation and liquidity needs.
Actionable Takeaways
- For a retiree with a family history of longevity (parents lived past 85), a QDAP annuity provides superior protection against outliving savings, with the tax deduction effectively reducing the net premium by up to 17% per year.
- An endowment policy is appropriate only if the retiree has a clear, time-bound use for the lump sum at maturity, such as funding a grandchild’s education or purchasing a second property.
- Maintain at least six months of emergency expenses in liquid assets (Hong Kong dollar savings accounts or short-term time deposits) before committing any funds to an annuity, given the surrender charges that can reach 18% in the first year.
- Verify the insurer’s historical bonus crediting rates over the past 10 years, as the trend of declining returns (approximately 200 bps since 2015) directly impacts the projected payout of endowment policies.
- Consult the Insurance Authority’s Product Comparison Portal (launched in 2023) to compare surrender charge schedules, guaranteed payout ratios, and tax deduction eligibility across all QDAP-compliant annuities before making a purchase decision.