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Qualified Deferred Annuity (QDAP): Key Terms to Know Before You Choose

6-min read

Updated on 2026-3-31

Author：AIA Content Editorial Team

What does your ideal retirement look like—maintaining your current lifestyle or travelling the world? To achieve an ideal retirement, it is essential to plan your finances carefully and make use of appropriate financial tools to help build a stable retirement life.

A deferred annuity is a long-term insurance product and a retirement savings tool designed to help policyholders convert accumulated savings into a stable stream of income over a specified period. A deferred annuity consists of two main stages: the accumulation period and the annuity payout period. During the accumulation period, policyholders are required to pay premiums at specified times. Once the annuity payout period begins, policyholders receive annuity payments on a regular basis. Typically, there is a gap between the premium payment period and the annuity payout period, allowing insurance companies to invest the funds and grow the policy value over time¹. In addition, taxpayers may apply for tax deductions on premiums paid into Qualified Deferred Annuity Policies, with a maximum deduction limit of HK$60,000 per tax year².

Earlier, the Consumer Council reviewed Qualified Deferred Annuity Policies (QDAPs) available in the market and found that among the 23 QDAP products examined, there were significant differences in minimum premium requirements, premium payment periods, accumulation periods, annuity payout periods, and internal rates of return (IRR). The Consumer Council advised that policyholders should carefully read the details of each plan before making a decision³. However, to fully understand the Consumer Council’s report and select the most suitable plan, it is important to first understand the meaning of several "Key Terms".

Who Is a Qualified Deferred Annuity Suitable For?

Qualified Deferred Annuities are most suitable for working individuals who wish to save for their long‑term retirement needs while enjoying tax‑deduction benefits. As government-recognised products, QDAP premiums are eligible for tax deductions (up to HKD 60,000 per year, shared with tax-deductible MPF voluntary contributions), allowing individuals to "save for retirement while saving on tax."

Individuals who recognise that MPF alone may be insufficient and prefer a disciplined savings approach.
Those who are not confident in active investment management or feel uncertain about long-term planning. QDAPs provide a disciplined, regular contribution structure to help build stable long-term cash flow. For those who hope to develop long‑term saving habits, tax‑deductible annuities provide a structured contribution framework that helps build consistent savings and supports the planning of future cash flow.
Individuals who want a stable monthly income after retirement. Annuities aim to provide regular income—such as monthly annuity payments, enabling retirees to cover essential daily expenses even without employment income.

Six Essential Key Terms of Qualified Deferred Annuities

1. Internal Rate of Return (IRR)

The internal rate of return (IRR) represents the rate used to discount future cash flows to their present value. In the context of deferred annuities, IRR reflects the overall return calculated based on the total premiums paid and the annuity income received throughout the policy term⁴.

Generally speaking, a higher IRR indicates a higher overall return. However, when comparing different QDAP products, policyholders should not rely on IRR alone. Product features, risk tolerance, and personal retirement needs should also be taken into consideration.

Annuity returns are usually divided into:

Guaranteed Internal Rate of Return (IRR), calculated solely based on the plan's guaranteed returns, which represent the minimum amount the company must pay the policyholder. This reflects the basic level of return protection.; and
Total Internal Rate of Return (Projected), calculated by combining both guaranteed and non‑guaranteed returns. Non‑guaranteed returns may vary depending on investment performance, claims experience and profitability, so the final amount may differ. This reflects the overall expected return level.

2. Premium Payment Period

The premium payment period refers to the length of time during which the policyholder is required to make premium contributions after purchasing a deferred annuity. For Qualified Deferred Annuity Policies, the minimum premium payment period is five years⁵.

3. Accumulation Period

The period following the premium payment phase during which the insurer accumulates and grows the policy value through investment⁵.

4. Annuity Payout Period

The annuity payout period is the stage during retirement when the policyholder starts receiving annuity income. Depending on the product design, the payout period may vary in length, and annuity payments can be made monthly or at regular intervals⁵.

5. Surrender Value

Deferred annuities are long-term insurance products intended for retirement planning. Early surrender or termination of the policy may result in financial loss. If a policy is surrendered in its early years, the surrender value received may be significantly lower than the total premiums paid⁴.

6. Death Benefit

If the annuitant, who is also the insured person, passes away before the policy matures, a death benefit will generally be paid to the designated beneficiary in the form of a lump sum, subject to the policy terms⁵.

Reminder: When you purchase a Qualifying Deferred Annuity Policy (QDAP), each taxpayer may apply for up to HKD 60,000 in tax deductions^# per year.

AIA Product Return Analysis: Which QDAP Option Offers the Highest Potential Value?

AIA Deferred Annuity Plan 2

AIA Deferred Annuity Plan 2 offers flexible annuity payment arrangements, allowing policyholders to select their annuity commencement age from 50, 55, 60, 65, 70, or 75. The plan provides guaranteed cash value, as well as guaranteed and non-guaranteed monthly annuity income, supporting long-term retirement income planning.

As a Qualified Deferred Annuity Policy, premiums paid into this plan are eligible for tax deductions^# of up to HKD 60,000 per taxpayer per year. This makes it a practical solution for individuals seeking both retirement income stability and tax efficiency.

Retirement Income Estimation: Calculating Annuity Income and Required Premiums

When planning for retirement, understanding how much guaranteed annuity income you may receive in the future is crucial. While IRR figures can be abstract, professional tools and advisory services can help translate savings plans into an estimated monthly retirement income.

Key Planning Parameters for AIA Annuity Payments

AIA Deferred Annuity Plan 2 is designed to offer flexibility through customisable annuity payment arrangements. Before conducting an income estimation, policyholders should consider key planning parameters such as eligibility age, selected annuity commencement age, and expected guaranteed internal rate of return and the projected total internal rate of return. The final projected IRR and monthly annuity income will depend on the contribution amount and the chosen payout start age.

Using Professional Tools for Retirement Planning

AIA provides dedicated tools and advisory services to support retirement planning. Policyholders may obtain personalized annuity income estimates through the following channels:

1. Protection Needs Assessment Tool

This tool helps individuals gain an initial understanding of your protection needs and clarify your long‑term retirement goals.

2. Consultation with a Financial Planning Advisor

As annuity plans involve different components (such as accumulation periods and premium payment periods), a financial planner can prepare a tailored proposal based on your personal needs and financial objectives. This helps you clearly understand the projected annuity returns and payout details under the policy.

Consultation Benefits:
Based on your selected annuity commencement age, the advisor will calculate your corresponding monthly guaranteed annuity income, along with the specific premium amount required to achieve your target retirement income.
Convenient Contact:
You may [Contact a Financial Planner Now] or obtain assistance through the AIA+ mobile app.

Qualified Deferred Annuity (QDAP) FAQ

Not all deferred annuities are eligible for tax deductions. Only Qualified Deferred Annuity Policies that meet government-approved criteria qualify. These criteria include:

a minimum total premium of HKD 180,000
a minimum premium payment period of five years
an earliest annuity payout age of 50
a minimum annuity payout period of ten years
mandatory disclosure of IRR as well as guaranteed and non-guaranteed annuity amounts.

Tax-deductible annuities are suitable for working individuals who wish to plan early for retirement and build a stable, self-funded retirement income stream.

Taxpayers may claim deductions for QDAP premiums when filing Salaries Tax or Personal Assessment. The maximum deductible amount is HKD 60,000 per year. Based on the highest salaries tax rate of 17%, this may result in annual tax savings of up to HKD 10,200.

Yes. If both spouses are taxpayers, they may flexibly allocate the tax deductions for premiums paid on Qualified Deferred Annuity Policies, with a combined maximum deduction of HKD 120,000. However, each individual’s deduction is capped at HKD 60,000 per tax year. There is no limit on the number of policies that can be used for tax deduction purposes.

Deferred annuity: A deferred annuity includes an accumulation period during which funds grow over time. Annuity income is only paid from a specified age, such as after retirement. Deferred annuities are more suitable for younger, working individuals who wish to build long-term savings while preparing for retirement.

Immediate annuity: With an immediate annuity, the policyholder pays the premium in a lump sum, and the policy takes effect immediately. Annuity income can usually be received starting from the following month. This type of product is generally more suitable for individuals who are approaching retirement or already retired, as it provides an immediate and stable source of income.

This article contains general information only and is intended for viewing in Hong Kong. It does not constitute any sales advice, product recommendation, or offer of services. Before purchasing any insurance product, customers are required to complete a financial needs analysis.AIA does not guarantee the accuracy or completeness of the information and content contained in this article.AIA shall not be responsible for any matters relating to the content, services, and/or products mentioned in this article.

^# Tax deductions is one of the allowable deductions from assessable income, it does not equate to a direct deduction from total tax payable. For details of tax deductions, please visit Inland Revenue Department (IRD) of HKSAR website and consult your tax and accounting advisors for tax advice.

^1.Insurance Authority, Qualifying Deferred Annuity Policy, https://www.ia.org.hk/en/qualifying_deferred_annuity_policy/index.html

^2.The maximum tax deduction is HKD 60,000 per year, representing the combined annual deduction limit that each taxpayer may claim for premiums paid into Qualified Deferred Annuity Policies and Tax-Deductible MPF Voluntary Contributions. For details on tax deductions, please refer to the website of the Inland Revenue Department of Hong Kong or contact the department directly for tax-related enquiries. AIA Group Limited Hong Kong does not provide any tax or accounting advice, and you are advised to seek independent advice from your tax or accounting advisor.

^3.Consumer Council, Qualifying Deferred Annuity Policies Should be Compared According to Tailor-made Personal Plan Evaluate “Internal Rate of Return” to Enjoy the Highest Yield, https://www.consumer.org.hk/en/press-release/532-qualifying-deferred-annuity-plans

^4.Insurance Authority, How to Choose a Qualifying Deferred Annuity Policy,

https://www.ia.org.hk/en/qualifying_deferred_annuity_policy/how_to_choose.html

^5.Insurance Authority, Tips on purchasing annuity products,

https://www.ia.org.hk/en/infocenter/files/Tips_on_Purchasing_Annuity_Products_Eng.pdf