Money: Smoke signals send out an expensive warning

THIS Tuesday is still likely to be the most important day of the year for the 12 million smokers in the UK. It will certainly have a greater influence on their costly activity than National No Smoking Day , the annual effort by the anti-smoking lobby to persuade addicts to kick their habit.

The Chancellor, Gordon Brown, is likely to put up the cost of a packet of 20 cigarettes by 25p to around pounds 3.50. At that rate the annual cost of smoking 20 a day will climb to pounds 1,277 a year, roughly 10 per cent of the annual income after tax of the average adult, and almost one-third of the annual cost of the average pounds 50,000 mortgage, which at the current mortgage rate of 8.7 per cent works out at pounds 3,959 a year net after interest relief.

Surprising as it may seem, smokers do not normally have to pay higher premiums for medical insurance than non-smokers, although some providers offer discounts for affinity groups including non-smokers from time to time. But smokers do have to pay extra for life assurance. According to a table of nearly 50 life assurance companies compiled by Money Facts, the Norfolk financial database, smokers have to pay anything from 30 per cent to 60 per cent more for life assurance than non-smokers.

At Legal & General the monthly premiums for pounds 50,000 worth of life assurance over 20 years for a 35-year-old man are pounds 14.75 for a smoker compared with pounds 9.25 - an extra 60 per cent. At Commercial Union the smoker would pay pounds 17.70, 50 per cent more than the pounds 11.75 a non-smoker would pay for the same amount of cover. The difference between the best and worst provider would add up to more than pounds 4,000 over the lifetime of a policy.

Smokers also have to pay higher premiums for mortgage endowment policies, although the differences here are less marked than with life assurance. A man of 30 would have to pay pounds 78.17 a month for a low-cost with-profits endowment policy over 25 years at GA Life, while his non-smoking counterpart would pay pounds 75.41. A woman smoker at the same age would pay pounds 75.20 and the non-smoker pounds 74.31 a month.

There are a few small gains on the swings for smokers to make up for their substantial losses on the roundabouts.

Those who survive to the point of retirement age can sometimes buy a bigger annuity with their personal pension pot, on the grounds that they have a significantly shorter life expectancy than non-smokers of the same age and sex.

Stalwart Assurance, for example, will pay a 65-year-old male an annuity of pounds 1,061 for each pounds 10,000 invested, provided he has smoked at least 10 cigarettes a day for the past 10 years, compared with just pounds 937 a year to a non-smoker.

Smokers who intend to give up after retirement are reminded that there is no requirement to continue smoking once the annuity has been purchased, says Peter Quinton at the Annuity Bureau, the specialist advisers on buying annuities.