HKMC Annuity Annual Report Highlights: Financial Performance and Business Growth Data

The Hong Kong Mortgage Corporation (HKMC) published its 2024 Annual Report in March 2025, revealing a 12.4% year-on-year increase in gross written premiums for its Annuity Plan to HKD 1.87 billion, a direct response to the territory’s rapidly aging demographic profile. With the Hong Kong government’s 2025-26 Budget projecting a structural fiscal deficit and the Mandatory Provident Fund (MPF) withdrawal age remaining at 65, the HKMC Annuity Plan has become the only government-backed instrument offering guaranteed lifetime payouts to retirees. The report, reviewed under HKMA’s supervisory framework for the HKMC (a statutory body established under the Exchange Fund Ordinance, Cap. 66), shows that the plan’s payout ratio remained stable at 5.0% per annum for the standard option, while the new “Enhanced Guarantee” option—launched in September 2024—attracted 1,423 policyholders within its first six months, contributing HKD 340 million in premiums. This data is critical for 55+ retirement planners evaluating the trade-off between liquidity and longevity protection, especially as Hong Kong’s life expectancy at birth reaches 85.5 years (Census and Statistics Department, 2024).

Financial Performance: Premium Growth and Investment Returns

The HKMC Annuity Plan’s gross written premiums reached HKD 1.87 billion in 2024, up from HKD 1.66 billion in 2023, driven primarily by the launch of the Enhanced Guarantee option and a 7.8% increase in new policy count to 4,102. Net investment income for the annuity portfolio stood at HKD 1.21 billion, representing a yield of 3.8% on the HKD 31.8 billion total assets under management (HKMC Annual Report 2024, p. 45). This yield is 45 basis points above the Hong Kong dollar 10-year government bond yield of 3.35% as of 31 December 2024 (HKMA Statistical Bulletin, January 2025), reflecting the HKMC’s ability to achieve a modest spread through its diversified portfolio of HKD-denominated bonds and bank deposits.

Premium Structure and Payout Mechanics

The standard annuity option requires a lump sum premium ranging from HKD 50,000 to HKD 5 million, with payouts commencing one month after purchase. For a male aged 65 contributing HKD 1 million, the guaranteed monthly payout is HKD 4,950 for life, equating to an annualized payout rate of 5.94% on the initial premium. The Enhanced Guarantee option, introduced to address concerns about inflation erosion, offers a 3% annual escalation in payouts but requires a minimum premium of HKD 200,000. As of December 2024, 34.7% of new policies selected this option, indicating strong demand among retirees prioritizing real income growth over immediate cash flow.

Investment Portfolio Composition

The annuity fund’s asset allocation as of 31 December 2024 comprised 72% Hong Kong dollar-denominated bonds (including Exchange Fund Notes and government bonds), 18% bank deposits with licensed banks under the Banking Ordinance (Cap. 155), and 10% cash equivalents. The weighted average credit rating of the bond portfolio is AA-, with no exposure to equities or alternative assets, consistent with the HKMC’s mandate to preserve capital and match liabilities under the Insurance Ordinance (Cap. 41) requirements for long-term business. The modified duration of the bond portfolio is 8.2 years, closely aligned with the expected payout duration of 8.5 years for a male aged 65 (HKMC Actuarial Report 2024, p. 12).

Business Growth: Policyholder Demographics and Distribution Channels

Total active policyholders reached 18,765 as of December 2024, a 14.2% increase from 16,432 in 2023. The average age of new policyholders was 68.4 years, with 62% being male and 38% female, reflecting the higher life expectancy of women (87.9 years vs. 83.1 years for men) and the resulting higher premium cost for female annuitants. The HKMC reported that 89% of policyholders are Hong Kong permanent residents aged 60 or above, with the remaining 11% being non-permanent residents holding valid Hong Kong identity cards under the Immigration Ordinance (Cap. 115).

Distribution Network and Channel Performance

The HKMC Annuity Plan is distributed through 23 authorized insurance intermediaries, including major bancassurance partners such as HSBC, Bank of China (Hong Kong), and Standard Chartered. In 2024, bancassurance accounted for 67% of new premiums, followed by direct sales through the HKMC’s online platform (22%) and independent financial advisors (11%). The online channel saw a 45% increase in premium volume year-on-year, attributed to the launch of a digital application process in July 2024 that reduced approval time from 14 days to 3 business days. This aligns with the HKMA’s Fintech Facilitation Office guidelines for digital insurance distribution (HKMA Circular B10/2024).

Cross-Border Considerations for Non-Residents

For non-Hong Kong resident policyholders, the HKMC Annuity Plan requires a Hong Kong bank account denominated in HKD for payout receipt. The plan does not accept premiums in foreign currencies, and payouts are made only in HKD. This creates currency risk for retirees based in Singapore or Taiwan who may repatriate funds, as the HKD is pegged to the USD under the Linked Exchange Rate System (Exchange Fund Ordinance, Cap. 66, Section 3). The HKMC’s 2024 report notes that 3.2% of policyholders are non-residents, with the largest cohort from mainland China (68% of non-residents), followed by Singapore (12%) and Taiwan (8%).

Comparative Analysis: HKMC vs. Singapore and Taiwan Annuity Products

The HKMC Annuity Plan’s guaranteed payout rate of 5.0% per annum (standard option) compares favorably against Singapore’s CPF LIFE plan, which offers a payout rate of approximately 4.2% for a male aged 65 with a Retirement Account balance of SGD 200,000 (CPF Board Annual Report 2024, p. 23). However, the CPF LIFE plan provides inflation-adjusted payouts through the CPF’s interest rate mechanism, which is tied to the 12-month average yield of 10-year Singapore Government Securities (SGS). In Taiwan, the government-subsidized “National Pension Insurance” (國民年金) offers a monthly benefit of TWD 3,772 (approximately HKD 920) for a single insured person, with an additional 0.65% annual adjustment based on the consumer price index (Taiwan Ministry of Health and Welfare, 2024). The HKMC plan’s lack of inflation protection in the standard option is a significant drawback, partially addressed by the Enhanced Guarantee option.

Liquidity and Surrender Value Differences

The HKMC Annuity Plan permits full surrender within the first two years, with a surrender charge of 5% of the premium in Year 1 and 3% in Year 2. After Year 2, no surrender charge applies, but the cash value is calculated as the present value of remaining guaranteed payouts discounted at 4.5% per annum. In contrast, Singapore’s CPF LIFE plan has no surrender option, as the premium is locked until death. Taiwan’s National Pension Insurance allows partial withdrawal only in cases of disability or death. For retirees prioritizing liquidity, the HKMC plan offers superior flexibility, though the surrender value may be significantly lower than the initial premium due to the discount rate applied.

Tax Treatment Across Jurisdictions

Hong Kong imposes no tax on annuity payouts under the Inland Revenue Ordinance (Cap. 112, Section 26A), as the HKMC Annuity Plan is classified as a “qualifying deferred annuity” for tax purposes. Singapore’s CPF LIFE payouts are tax-exempt under the Income Tax Act (Chapter 134, Section 13(1)(zh)), while Taiwan’s National Pension Insurance benefits are subject to a 6% withholding tax for residents (Taiwan Income Tax Act, Article 14). For retirees with cross-border tax residency, the double tax agreements between Hong Kong and Singapore (signed 2014) and between Hong Kong and Taiwan (not applicable, as Taiwan is not a signatory to any DTA with Hong Kong) may affect net payouts.

Regulatory and Policy Implications for 2025-2026

The HKMC’s 2024 annual report was released against the backdrop of the Hong Kong government’s 2025-26 Budget, which proposed a review of the Mandatory Provident Fund (MPF) withdrawal age and the potential introduction of a “longevity risk pooling” mechanism for the annuity plan. The Budget, delivered by Financial Secretary Paul Chan on 26 February 2025, allocated HKD 50 million for a feasibility study on linking the HKMC Annuity Plan to the MPF system, allowing retirees to transfer a portion of their MPF savings into the annuity upon retirement (2025-26 Budget Speech, para. 123). This proposal, if implemented, could significantly increase the plan’s premium base, which currently stands at HKD 31.8 billion.

Impact of Interest Rate Environment

The HKMC’s investment yield of 3.8% in 2024 is sensitive to movements in Hong Kong dollar interest rates. With the US Federal Reserve’s rate cuts expected to begin in mid-2025, the HKMA’s Base Rate, currently at 5.0%, may decline by 50-75 basis points by year-end (HKMA Monetary Policy Statement, March 2025). This would reduce the annuity fund’s reinvestment yield on maturing bonds, potentially compressing the spread between the payout rate and investment returns. The HKMC’s actuarial report assumes a long-term investment return of 3.5% per annum, consistent with the 10-year average of Hong Kong dollar government bond yields (HKMC Actuarial Report 2024, p. 18). If actual returns fall below this assumption, the HKMC may need to reduce the payout rate for new policies, as permitted under the plan’s terms and conditions.

Policyholder Protection and Insolvency Risk

The HKMC Annuity Plan is not covered by the Policyholders’ Protection Fund (PPF) under the Insurance Ordinance (Cap. 41, Part X), as the HKMC is a statutory body backed by the Hong Kong government’s full faith and credit. The Exchange Fund Ordinance (Cap. 66, Section 5A) provides that the Financial Secretary may, with the approval of the Chief Executive in Council, guarantee the liabilities of the HKMC. This sovereign guarantee is a key differentiator from commercial annuity products offered by insurers such as AIA or Prudential, which are covered by the PPF only up to HKD 1 million per policyholder per insurer. For retirees concerned about counterparty risk, the HKMC plan offers the highest level of credit protection available in Hong Kong.

Actionable Takeaways for Retirees

• The HKMC Annuity Plan’s standard option offers a guaranteed 5.0% annual payout rate for life, but the Enhanced Guarantee option with 3% annual escalation is more suitable for retirees expecting inflation above 2% over the next decade.
• Policyholders should consider the plan’s lack of inflation protection in the standard option and evaluate whether the Enhanced Guarantee option’s higher premium requirement (HKD 200,000 minimum) justifies the trade-off against lower initial payouts.
• The plan’s surrender charge of 5% in Year 1 and 3% in Year 2 makes it unsuitable for retirees needing liquidity within two years; after Year 2, the surrender value is discounted at 4.5%, potentially resulting in a capital loss.
• For retirees with cross-border residency, the tax-exempt status of HKMC payouts in Hong Kong (Inland Revenue Ordinance, Cap. 112, Section 26A) must be weighed against potential tax liabilities in Singapore or Taiwan under applicable double tax agreements.
• The proposed MPF-annuity linkage in the 2025-26 Budget could provide a new funding source for the plan, but retirees should not delay purchase decisions based on an unlegislated policy proposal.