Hong Kong’s new tax incentives for pension contributions have already encouraged more people to save for their retirement, a trend that could help ease the burden of an ageing population, according to regulators and insurers.
Several major pension providers including HSBC, Prudential, Manulife and AIA told the Post they had seen a strong response to their new tax-deductible deferred annuity and Mandatory Provident Fund products.
HSBC received 3,500 applications for MPF tax-deductible voluntary contributions and more than 5,000 for deferred annuity schemes by the end of May, according to Greg Hingston, head of retail banking and wealth management, Hong Kong, at HSBC.
The scheme, launched on April 1, allows employees to enjoy up to HK$60,000 in tax-deductible income if they buy a deferred annuity scheme or voluntarily contribute more to the MPF scheme. Depending on salary and other allowances, the tax savings could range from HK$180 to HK$10,200 per person per year.
The plan is the government’s latest initiative to cope with Hong Kong’s rapidly ageing population. The city, which lacks a comprehensive social security system, has 1.3 million people aged 65 or over, about 18 per cent of its total population, but that is expected to increase to 31 per cent by 2036.
“As life expectancy in Hong Kong continues to increase, planning for retirement has become an important topic for Hong Kong people,” Hingston said.
“We have seen very positive customer response since the launch of the products.”
Hong Kong launched the MPF in December 2000 as a compulsory retirement scheme, which now covers 2.9 million people. Its maximum mandatory contribution from the employer and employee combined stands at only HK$3,000 per month, which is too low to offer sufficient retirement protection.
A Mercer report in October ranked the MPF among the three least adequate retirement schemes worldwide because of the low level of contribution. The government tax incentive aimed to encourage more voluntary pension saving.
Some 3,400 employees had set up tax-deductible voluntary contributions to their MPF accounts in April, according to David Wong Yau-kar, chairman of pensions regulator the Mandatory Provident Fund Schemes Authority. No data was available for May.
That compares to only 5,300 people who set up voluntary MPF contributions in the whole of last year, before the tax incentives were introduced.
“We expect more MPF members to set up a tax-deductible voluntary contributions account for their MPF. They could enjoy the tax benefit while they can also save up more money to prepare for their retirement,” Wong said in an article posted on the website of the MPFA on Sunday.
Prudential found its sales of annuity products had grown threefold in the two months since the tax scheme was launched, according to Priscilla Ng, chief customer and marketing officer.
In terms of contribution amounts, Ng said most people have opted to pay more than HK$60,000 to take full advantage of the annual tax concession. Sales have been equally split between the different accumulation period of five, 10, 15 or 20 years, she added.
“The sales of our annuity products are better than expected during the first two months of the launch of the scheme. With the tax incentives, we believe the sales will continue to grow in the rest of this year,” she said. Around 70 per cent of the tax-deductible deferred annuity products were sold to people aged 41 to 60 years old.
AIA Hong Kong and Macau general manager Bonnie Tse said its MPF and annuity had sold well.
Manulife, the largest MPF provider in the city, saw its new tax-deductible voluntary contribution accounts sell well in April and May. More than half of the new policyholders chose to contribute more than HK$5,000 per month, or over HK$60,000 a year. On average, each pays HK$3,300 per month more to their MPF, according to a spokesman for Manulife.
Manulife also launched a tax-deductible deferred annuity scheme two weeks ago, which is proving popular, the spokesman said.