Go-ahead for annuity debut

Hong Kong Mortgage Corporation's life annuity scheme has been approved in principle, allowing citizens aged 65 and above to make a lump-sum premium investment of up to HK$1 million in return for a steady monthly payout.

Dominique Nguy

Tuesday, April 11, 2017

Hong Kong Mortgage Corporation's life annuity scheme has been approved in principle, allowing citizens aged 65 and above to make a lump-sum premium investment of up to HK$1 million in return for a steady monthly payout.

Financial Secretary Paul Chan Mo- po, who is also HKMC chairman, said the internal rate of return of the scheme was preliminary estimated to be 3-4 percent.

"The scheme is designed to meet the demand in the market for attractive and stable investment products," said Chan, who believes it will be an attractive option.

Hong Kong Monetary Authority chief executive Norman Chan Tak-lam, who is also HKMC deputy chairman, said: "For a male aged 65 years old investing HK$1 million into the scheme, it is estimated that he can get about HK$70,000 per year or about HK$5,800 per month."

As the life expectancy of women is longer than men, the return for the sexes will be different.

Chan said the minimum premium for each annuitant is HK$50,000 and the upper cap is HK$1 million. The scale of the HKMC life annuity scheme is capped at HK$10 billion.

Funds from the scheme will be invested by the HKMA's exchange fund and HKMC will cover for the scheme to guarantee a fixed monthly return.

Without going into details, Chan said the scheme will provide an exit option for investors and death benefit of 105 percent of the premium. Further details will be announced by the end of June at the earliest and it is aimed to launch the scheme in the middle of 2018.

Billy Mak Sui-choi, associate professor at Baptist University's department of finance and decision sciences, said: "Compared to other options for a stable income, such as iBonds or interest rates from bank deposits, this scheme as an investment tool is far more attractive.

"The scheme is intended to cover through the investor's lifetime - in other words, the longer you live, the more beneficial it will be."

Nelson Chow Wing-sun, emeritus professor of the department of social work and social administration at The University of Hong Kong, said: "The scheme is attractive for elderly with about HK$1 million assets and who do not know how to invest."

Chow said the return of 3-4 percent is very high, but he believes the government is taking a certain risk with the scheme.

Henry Shin, chief executive of Convoy Financial Services, said: "The life annuity scheme is helpful in raising local citizens' awareness about protection after retirement, but there are concerns that many elderly will remain suspicious about putting a large chunk of their money into the scheme."

Shin said the details of the scheme's exit option must be stated clearly.

Mandatory Provident Fund Schemes Authority chairman David Wong Yau- kar pointed out that, under the MPF legislation, scheme members can withdraw their MPF benefits upon reaching 65.

"With Hong Kong people having one of the world's longest life expectancy, the MPFA welcomes new financial tools, such as the life annuity scheme to be offered by HKMC, so that MPF scheme members may, depending on their personal circumstances, decide whether to manage the longevity and investment risks by converting their assets into a steady stream of retirement income," said Wong.