The Internet is afire with news that the Conservative government of Canada is planning to raise the minimum age for Old Age Security, as part of a comprehensive government-wide cost-cutting measure for the upcoming federal budget. I first heard about this news from my grandmother, who was scared that her benefits were going to be personally cut.
So, what is going on? Are current retirees going to be shoved out into the cold and shown the door? Is the government planning on impoverishing old people? What is actually going to happen?
First, it will help to enumerate what Canada’s current provisions for aged retirees is currently like. Here are the major programs:
Old Age Security (OAS): This is a form of financial assistance for retirees aged 65 and older, who have lived in Canada for at least 10 years. The money is allocated based on time in Canada; those who have been in Canada for at least 40 years will get the full payment, while those who have been in Canada for less will get a fraction of the payment. For example, someone who has been in Canada for 20 years would be eligible for a OAS payment of 20/40 or 50% of the amount.
The average payment is $508.35/month as of October 2011, however, those who have saved and invested for themselves and have a good income must repay part or all of their OAS benefits. Those who make at least $69,562 must start paying back part of the benefit, and those who make more than $112,772 must pay back the full amount. More information can be found on the government website.
Guaranteed Income Supplement (GIS): In addition to OAS, the government also provides a guaranteed income supplement for those with low income. The payment starts declining at an income of $16,368, and stops entirely at an income of $39,264.
Canada Pension Plan (CPP): This is the equivalent of Social Security in the U.S. and is funded by a 9.9% flat tax on income earned between $3,500 and $45,900. Twenty years ago, this burden was only 3.6%. This is therefore a regressive tax that hits lower-income earners much harder than higher-income earners, and these lower-income earners are forced to “invest” their money with the government. The government does not actually invest most of these payments, but instead uses them to pay out current retirees. On this basis, it is actuarially sound, but only on the assumption of future taxpayers continuing to pay into the fund, and likely at higher burdens.
Quebec Pension Plan (QPP): Quebec manages their own pension plan, at 10.05% and levied between $3,500 and $50,100 of income.
There are also additional pension plans managed by the government but only applying to a subset of the population, such as the Ontario Public Service Pension Plan.
Now that we have our definitions in place, this is what we have heard from Harper and the Conservative government:
- Minimum age for OAS benefits will be raised from 65 to 67 years old. This would put Canada in line with countries such as Germany, that have raised the minimum retirement age to 67 for those born after 1964.
- Those already retired or about to retire will not be affected.
- The changes proposed affect OAS only, and not the other programs.
- The reason behind this change is that the current $36 billion cost of OAS is expected to reach $108 billion by 2030. To put things in perspective, this would be like a cost of about $1 trillion for the US, though perhaps even more onerous because Canada’s per-capita GDP is lower.
- The government has so far refused to detail how the changes to OAS would take place, or if they will actually take place. A big political firestorm may cause the government to backtrack on this plan, or propose something different.
In order to protect lower income Canadians the age of OAS entitlement should remain at 65; however, the clawback starting and ending incomes should both be cut in half to help to substantially reduce the burden our federal treasury.
I actually think that this is not a bad idea. I don’t know why people making $60,000 a year should be getting old age security from the government, and by extension, the taxpayers. Leaving the age at 65 and changing the clawback instead also makes this a much better sell politically, and makes more sense.A low-income senior getting a few thousand bucks at 65 is certainly more palatable than a high-income senior getting the same at 67.
I have to say I am not surprised. The volatility of our government retirement supplement plans is not something new. There has always been talk about whether they would change or even stay in existence. I think this just goes to show that you need other savings and resources in place and to not rely on programs like this when planning for retirement.
I was shocked that OAS was available to incomes over 100K, to be honest. I think it’s time to start phasing out programs like this, and in the longer run, CPP should be made voluntary. I consider my current contributions to be pure tax, anyways, because that money is no longer mine, is not being set aside for me, and it will be a LONG time before I am of an age to start drawing upon that money and who knows much much the rules will have changed by then.
Agreed. We would all be better off if we could pay less tax and just save that money for ourselves. Like you say, it is no longer ours. How reliable is it then?
It’s okay to say the OAS should be dumped if you are a high income earner who has the ability to save for the own retirement, but others may not be able to for what ever reason. Don’t punish the less fortunate in our society.
Until I did the research, I honestly thought that’s what the OAS was. I think if it reverted to that, there would be little talk about financial sustainability of the program. From a libertarian perspective I would prefer it gone but from a practical perspective, scaling it down for higher income earners and keeping it for lower income earners is probably acceptable to most people. That would have to be phased in to avoid peeving soon-to-retire people.
At least your government is actively working on resolving the issue. I have no idea what our government is doing. Our congress is useless, they just fight and never pass anything good through.
I think raising the age limit to 67 is not a bad idea.
With the kind of laws your congress likes to pass, them doing nothing might be a good thing!
I’m with Mark Thorpe.
Any senior making $70,000 is doing just fine and doesn’t need government “security”, let alone those around $112,000.
I’m OK with the OAS eligibility moving to 67, but then again, I’m 30 years away from that age.
With my investments and pension from work, I hope I don’t need OAS. It should really go to those on or near the poverty line, that’s it.
I agree with this, Mark! Who knows if OAS will even be around in 30 years from now; I’m not going to count on it.
I’m in favour of people being responsible for themselves. I don’t know when we made this fundamental shift from preparing for your own retirement, to asking for the government to provide you with everything in life. As a person who has to pay taxes for the next 40 years to support this ridiculous block of ageing voters, I say that clawing back OAS for anyone that makes over 30K, and lifting the age to 67 is just the beginning. CPP rates should be lowered, and we should gradually phase in a 67 year old rule on that as well. When these ages were calculated, people lived substantially shorter lives. It is simple reality that repeated government investment in that generation will tilt the balance WAY too far away from a generation (or three) that really need the support right now.
It’s also compelling to see just how much tax rates for CPP have risen over time. The total burden used to be only 3.6%, and it is now 10%. This is a big burden on lower-income earners, who do not get the same freedom with this 10% of their money that higher-income earners do.
^agreed!
If Canada raises the age of their social safety nets, it doesn’t take a genius to see that the US is next.
I think it is important to leave benefits the same for those already receiving them. Many people currently using the programs planned their retirement around them.
Keep in mind it would only affect one program. I don’t know if the US even has an equivalent to OAS. They have SS which is more in line with our CPP, which is funded by a special tax between $3000 and $45000 – $50000.
I agree- anyone making over $70K (and being a senior) doesn’t need OAS.
Great post!
There are a lot of people milking the system.
Thanks Y&T! The tough part will be convincing the mass of older voters that it’s a good thing.
Very interesting to read about government retirement plans in other countries (am from the US). Thank you!
Np