The Over 50s Are the New Target ; MONEY As the Surprising Merger Between Saga and the AA Goes Through, Jeremy Gates Looks at Its Impact on the Consumer

By Jeremy Gates

A MILLION people are retiring each year - which partly explains the surprise merger of Saga, the travel and insurance group for the over-50s, and the AA, the drivers' friend in a roadside emergency.

It creates a pounds 6.2bn giant: both are big providers of financial services and 40% of the AA's 15m members are 50-plus.

As the new firmstarts with debts of nearly pounds 5bn, many employees await healthy payouts: Saga staff who invested pounds 20 in October 2004 collect pounds 10,500, AA boss Tim Parker waltzes off with pounds 40mafter three years' highly controversial work and Saga boss Andrew Goodsell hits the jackpot with pounds 128m.

But what about the customers, who must buy the products to generate revenue to service those enormous debts?

Says Aron Thompson, head of insurance at online price comparison site uSwitch.com: "The merger creates a combined customer base of 17m, including two million buyers of car insurance.

"The new group will be a key player in the industry, especially in the over-50s car insurance market. With more than 20m people over the age of 50 in the UK, it would be disappointing if car insurance products from Saga were in any way scaled down or diluted by this merger.

"Historically, the over-50s market, and in particular the over- 75 market has been a poor risk group for motor insurers.

"As a result, it has been badly served by the industry and Saga has dominated the market for some time."

Will older folk, many of whom grafted hard for their life savings, be a little miffed to see these household name companies being used to unlock untold riches?

Surely many of 3,000 staff axed by the AA since 2004 won't touch the new venture with a barge pole.

This is where life could get interesting.

The charity Help The Aged, launched in 1969, has finally started its own financial services group - "intune" - and Aron Thompson thinks it might challenge the private equity honchos of Saga-AA.

"While motor policies offered by intune and Saga are very similar, intune feeds all its profits straight back to Help The Aged, which will no doubt appeal to this audience," he says.

Although these are early days, intune already advises on equity release and care fees (through independent financial adviser NHFA Services), while Liverpool Victoria Friendly Society is its partner for travel, motor and home insurance available with no upper age limit.

In the savings market, intune is partnering West Bromwich BS, and will soon unveil an account to rival others paying higher rates to over-60 savers.

Through Keycare, intune provides a service to replace lost keys and tackle security worries.

Obviously, intune is still a minnow - but its plan to generate pounds 15m profits by 2012 to be fed back to Help The Aged (current turnover pounds 70m per year) underlines the formidable financial clout of older people.

The over-50s, accounting for 33% of the population, are sitting on wealth of pounds 760bn and account for 40% of all consumer spending. The figure will rise as interest rate rises favour savers at the expense of borrowers.

A higher proportion of adults in their 70s have motor insurance than in the 20-24 age group.

The proportion of over-70 year olds with a full driving licence has soared from 15% to 45% in three decades.

The number of over-65 year olds in the UK will rise from 9.6 million today to 15 million-plus by 2030. That's partly why McCarthy & Stone, the largest builder of 'sheltered' flats for older people, sold for more than pounds 1bn to private equity only months ago.

HSBC's third annual future of retirement survey confirms this rosy view: it says nearly half of 60-69 year olds have some form of paid work, and 95% of 60-79 year olds see themselves as being in fair, good, or very good health.

Says the HSBC survey: "Seventy is the new 50 - older people are healthy, active and in control of their own lives to a much later age."

However, Nigel Barlow at Just Retirement, a financial services handling equity release, annuities and other financial products for older people, sees wide variations in pensioner living standards.

Figures from Just Retirement indicate 8.1m pensioner households in the UK, with an average gross income of pounds 349 per week - just over pounds 18,100 per year.

The average household unit of working age has gross income of pounds 563 per week, or pounds 29,270 per year.

Deducting tax and housing costs, Mr Barlow reckons the average pensioner couple has pounds 375 a week to spend, and the average single pensioner pounds 178.

"We thought pensioners were rolling in it too," he says.

"But we have learned there is a wide variety of financial needs: about 10% of all pensioner couples have disposal income of pounds 162 or less per week, and a similar portion of single pensioners has pounds 83 or less."

The Just Retirement figures suggest not all pensioners will be able to join the glitzy new world which Saga-AA might hope to offer them: the average private pension pot with which it buys an annuity is just pounds 43,000 which means an income for life of barely pounds 2,000 a year, plus State benefits, for a 63-year-old.

Says Nigel Barlow: "There has been a cultural shift in attitudes in this age group: nearing retirement, people increasingly evaluate what sort of lifestyle they want, and then work out how to finance it."

He believes equity release, unlocking cash from bricks and mortar, must increase in the years ahead.

Currently, Just Retirement's typical equity release client has lived 18-21 years in a semidetached home worth pounds 200,000- pounds 250,000, and withdraws pounds 30,000- pounds 60,000 by equity release, with top ups later if needed.

Currently these loans cost around 6.5% - fixed for the life of the loan - which means an initial loan more or less doubles in value in a decade.

Subsequent top-ups are charged at the rate prevailing at that time.

Saga (0800 015 6256); intune (0800 083 4875 and www.intunegroup.co.uk, or by letter to 207/221 Pentonville Road, London N1 9UZ); Just Retirement (0845 302 2287); uSwitch.com (0800 093 0607).

The website www.pensioncalculator.org.uk, provided by the FSA and the Association of British Insurers, shows the level of savings needed to meet specific income expectations in retirement.

The new group will be a key player

(c) 2007 Daily Post; Liverpool. Provided by ProQuest Information and Learning. All rights Reserved.