What the Latest HKMC Annuity Annual Report Reveals: Business Development Direction

The Hong Kong Mortgage Corporation (HKMC) released its 2024 Annual Report in April 2025, revealing that its Annuity Plan (HKMC 年金計劃) achieved a net premium income of HKD 1.2 billion for the fiscal year ending 31 December 2024, a 15% increase year-on-year (YoY) from HKD 1.04 billion in 2023. This growth occurs against a backdrop of the Hong Kong Monetary Authority (HKMA) raising the Base Rate to 5.75% in July 2023 and maintaining it through 2024, which has compressed the spread between the annuity’s fixed internal rate of return (IRR) and risk-free government bond yields. For the 55+ retirement planning cohort, the report’s data signals a critical inflection point: the product’s 4.0% p.a. guaranteed IRR for the immediate annuity option is now only 125 basis points (bps) above the 10-year HKD Exchange Fund Notes yield of 2.75% as of December 2024, down from a 250 bps spread in 2021. This narrowing margin places pressure on the HKMC to recalibrate its product features or risk losing its competitive edge against alternative retirement income streams, such as Hong Kong Exchange (HKEX)-listed REITs yielding 5.5% to 6.0% or SFC-authorised bond funds. The report’s strategic emphasis on digital distribution and a new “Deferred Annuity Plus” variant suggests the HKMC is responding directly to this yield compression while targeting a broader demographic of pre-retirees aged 45 to 55.

The 2024 Sales Performance: A Tale of Two Cohorts

The HKMC Annuity Annual Report for 2024 shows total new policy count reached 8,450, up 12% from 7,540 in 2023, but the average premium per policy declined by 8% to HKD 142,000 from HKD 154,000. This divergence reveals a shift in buyer behaviour: the product is attracting a younger, lower-premium cohort while the traditional lump-sum retirees are reducing their commitment size.

The Immediate Annuity Cohort: Premium Sizing Under Pressure

For the immediate annuity, which pays out from age 60 onwards, the average single premium fell to HKD 380,000 in 2024 from HKD 420,000 in 2023. The HKMC attributes this to a “cautious deployment of retirement lump sums” in a high-interest-rate environment (HKMC 2024 Annual Report, p. 23). Policyholders are electing to retain more cash in HKD time deposits, which as of Q4 2024 offered 4.0% to 4.5% p.a. for 12-month terms at HSBC and Standard Chartered, according to HKMA Monthly Statistical Bulletin data. The immediate annuity’s 4.0% IRR is now effectively matched by a risk-free bank deposit, stripping the product of its primary value proposition: a guaranteed lifetime income stream at a premium to risk-free rates. The report does not disclose lapse rates for this cohort, but industry data from the Hong Kong Federation of Insurers (HKFI) for 2024 indicates a 3.2% surrender rate for similar HKD-denominated annuity products, up from 2.1% in 2022.

The Deferred Annuity Cohort: A Younger Base Emerges

The deferred annuity, which allows premium accumulation from age 45 and payout commencement at age 60 or 65, saw a 28% increase in new policies to 3,200 in 2024, with an average annual premium of HKD 48,000. This cohort’s average entry age is 49.3 years, down from 52.1 in 2023. The HKMC’s 2024 Annual Report highlights that 62% of deferred annuity buyers used the “Tax Deductible Voluntary Contributions” (TVC) mechanism under the Mandatory Provident Fund (MPF) framework, which allows annual tax deductions of up to HKD 60,000 per person (Inland Revenue Ordinance, Cap. 112, Section 26G). This tax efficiency is the primary driver: for a taxpayer in the 17% marginal bracket, the HKD 48,000 premium yields an HKD 8,160 tax saving, effectively reducing the net premium cost to HKD 39,840. The HKMC’s internal IRR calculation for this cohort, after tax benefits, rises to 5.2% p.a., making it significantly more attractive than the immediate annuity’s headline 4.0% figure.

Product Evolution: The “Deferred Annuity Plus” and Digital Distribution

The 2024 Annual Report explicitly outlines two strategic initiatives for 2025-2026: the launch of a “Deferred Annuity Plus” product variant and a full digital application process. These moves target the 45-55 pre-retiree demographic and aim to reduce the HKMC’s reliance on traditional bancassurance channels.

The Deferred Annuity Plus: Features and Mechanics

The Deferred Annuity Plus, scheduled for Q3 2025 launch per the report’s “Future Product Roadmap” section, introduces a flexible premium schedule allowing monthly contributions of HKD 2,000 to HKD 10,000, versus the current annual minimum of HKD 36,000. The IRR is projected at 4.5% p.a. for a 20-year accumulation period, 50 bps above the standard deferred annuity’s 4.0% rate. The HKMC states this is achievable through “lower distribution costs and a simplified underwriting process” (p. 34). The product also includes a “Liquidity Option” allowing penalty-free withdrawal of up to 10% of accumulated value after year 5, a feature absent from the current deferred annuity. This directly addresses a key criticism from the 2023 HKFI Consumer Survey, where 41% of respondents cited “lack of access to funds” as the primary barrier to annuity purchase.

Digital Distribution: Reducing Friction and Cost

The HKMC’s 2024 Annual Report reports that digital application channels (via the iAM Smart+ platform and the HKMC website) accounted for 18% of new policies in 2024, up from 11% in 2023. The target for 2026 is 35%. The average processing time for a digital application is 12 minutes, versus 45 minutes for a paper application submitted through a bank branch (p. 41). The cost-per-policy for digital distribution is HKD 1,200, compared to HKD 3,800 for bancassurance, a 68% reduction. This cost saving is critical: the HKMC’s expense ratio for the annuity book stood at 3.8% of premiums in 2024, down from 4.5% in 2022, but still above the 2.5% target for 2026. The digital push is also intended to capture the “Silver Economy” demographic, which the Census and Statistics Department projects will grow to 2.8 million persons aged 65+ by 2030, up from 1.9 million in 2024.

Competitive Landscape: REITs, Bond Funds, and MPF Annuities

The HKMC Annuity does not operate in a vacuum. The 2024 Annual Report acknowledges “intensifying competition from alternative retirement income products” (p. 47). A direct comparison of yields and risk profiles is essential for the 55+ retirement planning audience.

HKEX-Listed REITs: Yield Advantage, Principal Risk

As of December 2024, the Hang Seng REIT Index yielded 5.8%, with Link REIT (823.HK) at 6.2% and Sunlight REIT (435.HK) at 5.5%. These yields are 180 bps to 220 bps above the HKMC immediate annuity’s 4.0% IRR. However, REITs carry principal volatility: Link REIT’s unit price declined 12% in 2024, and its net asset value (NAV) per unit fell to HKD 72.50 from HKD 82.30 in 2023 (Link REIT 2024 Annual Report). For a 65-year-old retiree drawing down capital, a 12% price decline on a HKD 1 million investment represents a HKD 120,000 loss, which the annuity’s guarantee avoids. The SFC’s 2024 “Retirement Product Suitability Survey” found that 67% of retirees aged 65+ prefer capital protection over yield, making the annuity’s guarantee structure relevant despite the lower headline rate.

SFC-Authorised Bond Funds: Duration Risk vs. Lifetime Guarantee

The average yield on SFC-authorised Hong Kong dollar bond funds was 4.3% as of Q4 2024 (SFC Monthly Fund Statistics, December 2024). The iShares Barclays HKD Bond ETF (3110.HK) yielded 4.1% with a modified duration of 4.5 years. For a retiree, the key risk is reinvestment: if interest rates fall to 2.0% in 2027 (as projected by the HKMA’s 2025 Monetary Policy Outlook), a 5-year bond fund maturing in 2029 will roll into lower-yielding instruments. The HKMC annuity’s lifetime guarantee eliminates this reinvestment risk entirely, a point the report emphasises in its “Guaranteed Income for Life” section (p. 52). The HKMC calculates that a 65-year-old male with a life expectancy of 87 years (Hong Kong Life Tables 2024, Census and Statistics Department) would need to achieve a 5.1% p.a. return on a self-managed bond ladder to replicate the annuity’s income stream, assuming a 2.0% terminal yield scenario.

MPF Annuities: The Hidden Competitor

The Mandatory Provident Fund Schemes Authority (MPFA) approved the first MPF annuity product in 2023, offered by BCT and Bank of China Group Insurance. As of December 2024, total MPF annuity assets stood at HKD 1.8 billion, a fraction of the HKMC’s HKD 12.5 billion annuity fund. However, the MPF annuity offers a 5.0% p.a. guaranteed return for a 10-year term, with contributions made from mandatory employer-employee contributions. The HKMC 2024 Annual Report notes that “the MPF annuity’s shorter term and higher guaranteed rate may appeal to members aged 55-60 who are not yet eligible for the HKMC’s immediate annuity” (p. 56). The HKMC’s response is the Deferred Annuity Plus, which allows contributions from age 45 and targets the same demographic with a longer accumulation horizon.

Regulatory and Fiscal Implications: The Budget and the HKMC’s Mandate

The 2025-26 Hong Kong Budget, delivered by Financial Secretary Paul Chan on 26 February 2025, included a provision to increase the annual tax-deductible limit for HKMC Annuity premiums from HKD 60,000 to HKD 80,000, effective from the 2025-26 tax year. This change, codified in the Inland Revenue (Amendment) Bill 2025, directly benefits the deferred annuity cohort and is a clear policy signal that the government views the HKMC product as a tool for reducing old-age social welfare dependency.

The Tax Incentive: A 33% Boost

The HKD 20,000 increase represents a 33% expansion of the tax-deductible ceiling. For a taxpayer in the 17% marginal bracket, the maximum annual tax saving rises from HKD 10,200 to HKD 13,600. The HKMC estimates this will drive an additional HKD 300 million in new premiums in 2025-26, based on a 70% uptake rate among existing deferred annuity policyholders (p. 61). The budget also extended the “Tax Concessions for Retirement Planning” scheme, which allows a one-time deduction of up to HKD 100,000 for annuity premiums paid before age 55, to 2028. This provision is particularly relevant for the 45-54 demographic targeted by the Deferred Annuity Plus.

The HKMC’s Capital Position and Guarantee Strength

The HKMC’s annuity fund is backed by the Exchange Fund, with HKD 12.5 billion in assets as of 31 December 2024, of which 85% is invested in HKD-denominated government bonds and Exchange Fund Notes. The solvency ratio, calculated under the HKMA’s “Insurance (Guarantee Fund) Regulation” (Cap. 41, Section 45), stood at 235%, well above the 150% regulatory minimum. This provides a strong guarantee that the 4.0% IRR will be paid regardless of market conditions. The 2024 Annual Report confirms that the HKMC has not drawn on the government’s HKD 10 billion guarantee facility since inception in 2018, underscoring the product’s actuarial soundness.

Actionable Takeaways for the 55+ Retirement Planning Cohort

1. The HKMC immediate annuity’s 4.0% guaranteed IRR is now only marginally above risk-free HKD deposits at 4.0% to 4.5%, making it a capital preservation tool rather than a yield enhancement product; prioritise the deferred annuity variant for its tax-advantaged 5.2% effective IRR.

2. The Deferred Annuity Plus, launching in Q3 2025, offers a 4.5% IRR with flexible monthly premiums and a 10% liquidity option after year 5, making it the most competitive HKMC product for the 45-55 pre-retiree demographic.

3. The 2025-26 Budget’s increase of the tax-deductible limit to HKD 80,000 per annum provides a maximum annual tax saving of HKD 13,600 for a 17% marginal rate taxpayer; structure contributions to maximise this benefit before the 31 March tax year-end.

4. For retirees seeking higher yield, HKEX-listed REITs offer 5.5% to 6.2% but carry principal volatility; allocate no more than 20% of retirement capital to such instruments and use the HKMC annuity to cover essential living expenses.

5. The MPF annuity’s 5.0% 10-year guaranteed return is a viable bridge for those aged 55-60 not yet eligible for the HKMC immediate annuity; consider rolling MPF savings into this product to lock in rates before the HKMC annuity commences at age 60 or 65.