Hong Kong upped the ante for retirement savers in March by introducing tax incentives for annuity premiums and mandatory provident fund (MPF) voluntary contributions.
But how much of an impact will it have?
From 1 April 2019, the maximum tax-deductible limit became HK$60,000 (£5,860, $7,640, €6,810) per year – per taxpayer. This doubles for married couples.
Clement Cheung, chief executive of Hong Kong’s Insurance Authority, said at launch: “The tax incentive injects a huge impetus that will help promote healthy development of the deferred annuity market and enrich the mix of insurance products available in Hong Kong.”
A spokesman for Hong Kong’s Financial Services and the Treasury Bureau added: “We hope that [it] can be an incentive to encourage the working population to make early retirement savings in order to cope with the financial risk arising from longevity.”
He added: “It is most ideal to have a basket of financial tools for retirement financial planning.”
What does it mean for expats?
To understand what the changes mean in practice, International Adviser reached out to the advisory community in the special administrative region.
James Sutton, director of The Fry Group Hong Kong, welcomed the expansion of the jurisdiction’s pension system, “which has needed improvement for some time”.
“While it could form an important part of an individual’s retirement funding, there are several important points to consider.”
Specifically, that the “tax relievable pension contributions remain significantly below the provisions offered in the UK”, he said.
As a firm specialising in UK expat clients, this is a key consideration – one that was echoed by Sheila Dickinson, managing partner at Select Investors – a partner practice of St James’s Place Hong Kong.
She told IA: “The reality is that this will have little impact on the expat market here. By way of comparison, in the UK an individual has a £40,000 ($52,100, €46,500) annual allowance, significantly higher than the Hong Kong proposed increase.
“Taking into account that, in Hong Kong, the tax rate, and therefore the tax saving, is much lower; there is little appeal here for expats,” Dickinson said.
She described the tax incentives as “a step in the right direction, but it is unlikely to have gone far enough”.
Alan Armitage, managing director of recently launched consultancy and advisory firm Tmr:today, concurs.
“The products are not portable and the contributions that receive the tax rebate are categorised the same as the mandatory contributions, in that you cannot withdraw them until age 65 or if you leave Hong Kong.
“The investment choices are also limited compared to international products, mutual funds and ETFs.
“So, in general, they are most likely not suitable for an international customer; unless, of course, they are already in an MPF plan, in which case they could increase contributions by HK$60,000 per year at virtually no cost.”
Using the toolkit
As alluded to above by the spokesman for the Treasury Bureau, the tax incentive is just one tool in the retirement savings kit – another issue Sutton was keen to highlight.
“With these limits, people who will have a higher retirement income need in the future can’t rely solely on Hong Kong pension funding to meet their retirement goals and should consider additional savings options.
“These points need to be considered when looking at alternative savings vehicles in Hong Kong, such as general investment accounts; which, while not receiving tax relief on contributions, provide a wider choice of investments, greater flexibility of access and no tax on gains or income on the investments held in the accounts.
“While there are some benefits to funding your pension savings via these new rules, it is important that you speak to your financial adviser to decide on the most appropriate strategy for you,” Sutton said.
What about the local market?
Armitage was also unconvinced that the changes will have much impact on the domestic market.
“I doubt that this will be sufficient to change the behaviour of the majority of the population, as there is still a strong preference to invest spare cash into stocks.
“Some estimates suggest that pensions contributions need to increase on average four-to-six times to provide sufficient post-retirement income.”
But the proof will always be in the pudding, and firms have already signed up to offer products – with seven available as of 1 April when the regime went live.
AIA International, Axa China Region Insurance Company, BOC Group Life Assurance Company, Hang Seng Insurance Company, HSBC Life (International) and Prudential Hong Kong were all certified as qualifying deferred annuity policy (QDAP) providers by the Insurance Authority.
HSBC brought two products to market.
Dickinson confirmed that St James’s Place is not considering bringing any such product to market at this time.