Smoke, drink and reap the rewards at pension time

Surfing 65-five-year-olds may not yet be able to pick up enhanced annuity payments owing to their poor life expectancy, but the prospect is not as far off as it once was.

A life assurance company has taken the first step by offering better payments to long-term heavy smokers, as they are likely to die sooner.

Stalwart Assurance, the self-styled leading provider of financial products for the elderly, is not drawing the line at smokers and is looking at other "impaired life" groups as the industry terms them.

The over-weight, or those with high blood pressure could be the next to benefit. Who knows, alcoholics and hang-gliding pensioners might follow.

The drawback is that if companies jump on the band wagon, the result could be that those who eschew alcohol, tobacco and culinary over-indulgence, would receive less.

Under Stalwart's deal, smokers will get on average 8 per cent more than they would with standard products, as statistics show a 65-year-old who smokes is likely to die two or three years earlier than a non-smoker.

Traditionally, the purchase of an annuity with a lump sum pension is made without regard to a client's medical history. Only gender - women tend to live longer - and age are taken into account. The annuity provides a steady income no matter how long an individual's life.

But with a market of about pounds 3bn, and one-third of that down to smokers, Stalwart seized the opportunity to steal a march on its rivals.

Data from the firm shows an annuity bought for pounds 50,000 by a 65-year-old man who has a history of heavy smoking, who smokes at least 10 cigarettes daily and has done for 10 years, would receive pounds 6,236 compared to pounds 5,642.52 from Prudential Financial Services, one of the market leaders.

Mike Fuller, Stalwart's managing director, said: "If you're a regular hang-glider pilot and go shopping for life insurance, that's a factor that will be taken into account. We are just operating the principle in reverse with this new scheme."

While competitors, such as Prudential, said that they would keep the market under review, they had no plans to offer their own schemes.