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Hong Kong’s public annuity scheme offers elderly no bang for their buck

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Hong Kong’s senior citizens are being officially invited to take a gamble on their longevity. If they assume they will have a long life, the new public annuity scheme might well prove attractive.

The scheme, launched this week, more or less amounts to being a self-funded pension plan for people above the age of 65.

The way it works is that participants invest a lump sum with the government and, in return, are paid a guaranteed fixed monthly sum for the rest of their lives. Profits, such as they are, only accrue to people with very long lives.

The maximum investment stands at HK$1 million (US$127,412), with a minimum of HK$50,000. Given that women tend to live longer than men, they will get a monthly return on the maximum investment of HK$5,300 (men get HK$5,800), which means that if the investor survives for more than 15 years, they can start earning real money on their investment.

Life expectancy in Hong Kong is unusually long compared with other places; currently, the average life expectancy for men is 84 years and 87 for women.

Therefore, if a 65-year-old were to invest this month, the “profits” of this annuity scheme would start kicking in when they reach 80. Thus, on the basis of average mortality rates, a man who lives until the age of 84 would receive HK$278,400 more than he invested over the additional four years, meaning a gain of just over 25 per cent on his original investment. Or, to put it another way, this is equivalent to an average annual interest rate of 1.6 per cent.


© South China Morning Post