Taxpayers missing out on Full Benefits of Tax-Deductible Solutions and Tax Savings

A recent Manulife survey has revealed that even though tax-deductible products were launched three years ago, Hong Kong taxpayers still do not fully understand the characteristics and benefits of the products.

In the survey conducted by Manulife in late February 2022, Hong Kong taxpayers were asked about their knowledge of a trio of tax-deductible solutions: Voluntary Health Insurance Scheme (VHIS), Qualifying Deferred Annuity Policies (QDAP) and Tax Deductible Voluntary Contributions (TVC) under Mandatory Provident Fund (MPF) schemes. Respondents answered just four out of fifteen questions correctly, suggesting that taxpayers are missing out on the full benefits of tax-deductible solutions and tax savings.

The survey also highlights that the pandemic has pushed people to consider increasing medical protection for themselves and their families, Manulife said in a press release.

"The majority of respondents remain unfamiliar with the benefits of tax-deductible solutions," said Mr. Danny Lee, Chief Product Officer, Manulife Hong Kong and Macau. "People often underestimate the added value these solutions provide. For example, regarding VHIS knowledge, while respondents are aware there is no 'lifetime benefit' limit for VHIS, over two in five are not aware VHIS plans offer guaranteed renewal for people up to the age of 100 years. Only slightly more than a third know that day case procedures, prescribed diagnostic imaging tests, and prescribed non-surgical cancer treatments are covered. The low literacy on the full benefits of tax-deductible solutions potentially stops taxpayers taking active planning measures to enhance their medical protection and retirement preparedness."

Understanding of tax-deductible solutions remains low

Almost three out of four (73%) Hong Kong people know VHIS certified plans are administered by the Government with enhanced premium transparency. When asked about the key features of VHIS plans, however, only slightly more than a quarter are aware of half of the key features. Older respondents and those with higher income are generally more knowledgeable.

Key takeaways from the survey include:

• 50% are aware there is a cooling-off period of 21 days
• Less than half (44%) know that unknown pre-existing conditions are covered
• Only one-fourth acknowledge that treatment of congenital conditions is covered
• Less than one-fourth correctly answered that psychiatric impatient treatments in hospitals in Hong Kong are covered

Compared to last year, more people know that VHIS purchases for spouses (58% vs. 46%) and children (47% vs. 39%) as insured persons are eligible for tax-deduction. More than one-third (37%) are aware that the same applies to policies purchased for parents and grandparents, whereas only around 1 in 10 know that policies bought for in-laws (12%) and siblings (10%) are also in the scope.

Knowledge of QDAP is similarly low. Only 30% of respondents are aware that the annuity period could start once the annuitant has reached the age of 50 or older. The relatively earlier retirement start age offers more flexibility and allows financial freedom for people targeting early retirement. It's worth noting that almost two in five (39%) see QDAP as an investment product, when in fact it is an insurance product.

"Annuity is a long-term insurance product designed to help people turn accumulated savings into a stable income stream over time, to protect them from the risk of outliving their income upon retirement," said Mr. Lee. "It is a useful tool for retirement planning that allows you to accumulate a retirement fund when young. Its relatively low-risk exposure also helps to build a regular income stream upon retirement, while QDAP offers tax benefits."

Pandemic pushing people to invest in their own health and of their families

When asked whether they will consider buying any new insurance products for themselves or their family over the next six months, 58% responded favourably. A deeper dive reveals that 43% are interested in health and protection insurance including VHIS, hospitalization and surgical insurance, and outpatient insurance, while 38% are thinking about other financial solutions such as QDAP, savings insurance, and investment linked insurance.

The survey also shows that the pandemic is the main factor of increased purchase intent of medical insurance. Despite half of the respondents already owning personal health insurance, more than a quarter are considering purchasing health insurance in the next six months. And 27% of those who do not own health insurance are also considering purchasing health insurance. Other reasons for purchasing health insurance include it being a regular routine to increase medical protection (31%), as well as owning outdated medical insurance purchased more than 5 years ago (31%).

"Manulife provides a full suite of tax-deductible solutions dedicated to enhancing health protection and retirement preparedness of Hong Kong people," added Mr. Lee. "VHIS, QDAP, and TVC are great solutions that offer customers enhanced protection, greater financial security, and tax benefits. It is advisable for taxpayers to take the time and effort needed to educate themselves on these solutions so they can better understand their options and plan ahead.