Smokers may not want to tell their doctor how many cigarettes they puff away on each day, but any tobacco lover who is looking to use their pension to buy guaranteed retirement income would do well to be frank when they shop around and apply for an annuity.
According to research from Hargreaves Lansdown, hardcore smokers that get through 40 cigarettes a day could boost their income by a whopping £1,132 every year, seeing their payout rise from £5,539 to £6,671 (based on a 65-year-old with a £100,000 pot). Twenty-a-day smokers will see their annual income rise by £910, while those on a more moderate five a day could get an additional £410.
This is because annuity providers base payouts on assumptions of how long policyholders will live and specialist enhanced providers are able to take into account any medical conditions or lifestyle habits that are likely to reduce life expectancy.
Even reformed smokers may still be able to give their income a boost. Twenty-a-day smokers who gave up at age 63 could still qualify for a further £506 a year by the time they turn 65. Even if the same smoker ditched the habit when the smoking ban was introduced in 2007, they would still be eligible for an extra £193 a year.
Hargreaves Lansdown crunched the numbers following the publication of the UK’s adult smoking habits by the Office for National Statistics. As the data relates to 2017, they reflect the habits of smokers in the UK 10 years after the smoking ban was introduced on 1 July 2007.
It found that, across the UK, 15.1% of adults smoke – around 7.4million in total. Among those in the run-up to retirement (aged 50 to 59), smoking levels were higher at 17.9%, and a further 58.3% of this group also admitted to being ex-smokers. Younger adults aged between 25 and 34 are the most likely to smoke, with 21.9% admitting they were smokers.
Commenting on the numbers, Nathan Long, senior analyst at Hargreaves Lansdown, says: “If you must smoke, with all the knock-on consequences for your health, then you may as well get paid for it. Annuities are a way of turning your pension into a guaranteed income for life, and providers actually give you a higher income based on certain health and lifestyle conditions, which includes smoking.
He adds: “When the smoking ban first came in you needed to have smoked at least 10 cigarettes a day, for the previous 10 years to qualify for a higher income. Back then, people who had successfully stopped smoking weren’t considered at all. Annuities are now far more personalised and will cater for ex-smokers too, so it pays to disclose all of your health information in the hope of a higher income. Use an annuity broker to help you select the provider that will maximise your income.’