LCQ14: Life annuity scheme to be launched by Hong Kong Mortgage Corporation Limited


Hong Kong (HKSAR) -      Following is a question by the Hon Jimmy Ng and a written reply by the Secretary for Financial Services and the Treasury, Mr James Lau, in the Legislative Council today (February 7):
 
Question:
 
     The Hong Kong Mortgage Corporation Limited (HKMC) announced in April last year that its Board of Directors had approved in principle to introduce a life annuity scheme (the Scheme), under which an annuitant, after making a lump-sum premium payment, would be provided with lifetime monthly payouts. HKMC expects thatthe Scheme can be launched by the middle of this year at the earliest. In this connection, will the Government inform this Council:
 
(1) of the latest details of the Scheme, including (i) whether the scale of $10 billion will be expanded in the light of market response, (ii) themethod by which annuitants will be selected in case of over-subscription, and (iii) the method for calculating the amount that an annuitant may get back in case of early surrender of his/her policy;
 
(2) given that since HKMC's announcement of its plan to launch the Scheme, various insurance companies in the private sector have introduced one after another annuity products with novel features (e.g.

annuity payouts to be increased progressively with age and the minimum entry age set at 30), whether HKMC will consider introducing annuity schemes with similar arrangements for members of the public to choose; if so, of the details; if not, the reasons for that;
 
(3) whether HKMC will introduce an annuity scheme under which monthly payouts are linked with the inflation rate, so as to ensure that the purchasing power of the annuity payouts will not be gnawed by inflation; if so, of the details; if not, the reasons for that; and
 
(4) whether the premium paid and the monthly payouts under the Scheme will be taken into account when the authorities conduct asset and income tests on beneficiaries of various forms of subsidised housing and social welfare initiatives; if so, of the details?
 
Reply:
 
President,
 
(1) The announcement of the introduction of the Life Annuity Scheme (the Scheme) of the Hong Kong Mortgage Corporation Limited (HKMC) has attracted widespread public discussion. Subject to prudent risk management principles, HKMC will consider suitably increasing the issuance size of the Scheme if the public response is favourable.
 
     In case of over-subscription of the Scheme, HKMC will adopt balloting for allocation. The detailed mechanism is still under development, and will be announced before the subscription period.
 
     The Scheme is intended to be a long-term retirement product.

Annuitants should maintain sufficient liquidity for emergency needs. Early surrender may incur a loss as the total amount of the surrender value and the annuity payout received may be less than the premium paid. The surrender value calculation mechanism is being developed.

The surrender value will be clearly shown in the Benefit Illustration for Life Insurance Policies, and clear explanation will also be provided during the sales process.
 
(2) The Scheme is an immediate lifetime-guaranteed fixed-payout annuity with retirees as the main target segment. Notwithstanding having a certain amount of savings, retirees may be worried that there will be no stable income to sustain their long-term living expenses after retirement. In view of considerable demand for this type of investment products in the market, HKMC's top priority is to provide retirees with a choice so that they can better plan for their retirement and address their longevity risk.

At this stage, HKMC has no plan to launch any regular-premium deferred annuity for the younger generation.
 
(3) The Scheme is intended to be a long-term product. There is currently no instrument available in Hong Kong for hedging inflation risk and such feature would be complicated as well. HKMC considers it more appropriate to first introduce an annuity scheme that is simple and easy to understand for senior adults.

Therefore, HKMC has no plan to launch an inflation-linked annuity product at this stage.
 
(4) At present, different subsidised housing and social security schemes may have varying income and asset assessment mechanisms due to different policy considerations. HKMC believes that relevant departments will regularly review the arrangements and make adjustments as necessary.



Published on: 2018-02-07

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