Does Old Age Security need change?

Here we go again!  It’s budget time and at the World Economic forum, Stephen Harper hinted that some major changes to the retirement income programs in Canada are coming.

Should we be surprised?

The fact that Canada has an aging population and the earliest baby boomers have turned 65 and already started to retire is no secret to anyone.

The government has already taken steps to make some changes.  It started with Canada Pension Plan.  In 2009, the review of the program confirmed CPP is on solid ground and is well funded.  New changes to CPP were implemented this year.

Last year the government introduced proposed legislation for the new Pooled Registered Pension Plan (PRPP) as a way to introduce more opportunities to save through the workplace.

Now, many people speculate that Old Age Security (OAS) is going to be the target for change.  Harper said “For those elements of the system that are not funded, we will make the changes necessary to ensure sustainability for the next generation while not affecting current recipients.”

How might OAS change?

According to government reports, OAS is costing the government $36.5 billion dollars.  They predict that the cost to fund Old Age Security will triple to $108 billion by 2030.

Although that may be grounds for concern, Harper was clear that we were no Greece and we did not have a fiscal crisis on our hands.  Any changes to OAS would be forward thinking.  Any changes today would help prepare for the demographic pressures of the Canadian economy.

I see four things they could change:

  1. Remove the indexing of OAS
  2. Lower the benefit by a little
  3. Lower the OAS clawback threshold
  4. Increase the age of eligibility from 65 to 67.

It appears from speculation that the government is most likely to look at increasing the age of eligibility to age 67. Increasing the age of eligibility has already started in other countries like Great Britain and the US.

Politics may play a big role

This is not the first time a government has tried to make changes to OAS.  Back in 1996, I remember the government tried to replace OAS with the Seniors Benefit Program and massive lobbying proved effective as the governments backed off.

Many seniors groups like the Canadian Association of Retired Persons (CARP) are already getting ready for battle.  I see a revolt brewing (especially from the Liberals and NDP) so Harper needs to be careful.  He can’t forget that this majority government may have been formed because people were tired of a series of minority governments and tired of having expensive elections.

OAS and CPP are the backbone of the retirement income system and cutting the boomers income in retirement may not sit well among this influential group.

My two cents

Pension reform is important but I am not sure the changes that have been made are going to work.  I get that the boomers will have a severe impact on the retirement income system but I’m not sure the PRPPs will be the solution.  It’s too late for a lot of boomers so governments need to get creative about where to get the money from to pay for OAS.

Personally I would rather see a change to the clawback levels because that would affect higher income earners only where a change to the age of eligibility would affect everyone.

Members of Parliament (MP) also need to look at their own lucrative pensions as a significant place for cuts.  Taxpayers are laying $10 to $25 dollars for every dollar an MP contributes to their own pension for a benefit that is overly generous.  It's only fair that the government look at cutting their own lucrative MP pensions before they cut back OAS.

It’s just not fair to expect Canadians to cut back on the basics when MPs can create the equivalent of a 30-year pension in just 6 years.  Read this article to learn more about these lucrative Pensions

What do you think?  This is a time to use your voice productively.

 

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

12 Responses to Does Old Age Security need change?

  1. Well, the truth is that with life spans increasing it is almost inevitable that minimum age to receive pension benefits will increase [though it may be a painful process to get to that place].

  2. What do people making over,say $40,00,need OAS for?There are some people,for various reasons,who must make a go of it on OAS alone.In my case,being 62 years of age,I will get maximum CPP and old age pension only.No company pension,and less than $100 G in RRSP investments.One of the fortunate ones.
    Like the system of social assistance,dont pay the ones who really dont need it.
    None of the ones getting generous public pensions need OAS.

    • My question is why not Karl. People for various real must make a go of it on OAS alone.

      Educate me Karl tell me why you have to make a go of it on CPP and OAS.

      Why am I not entitled to OAS too I pay my taxes, worked hard and did not keep up with the Jones.

  3. Unfortunately the lawmakers and their civil servants look at OAP as chump change for their own personal retirement plans. Get real guys – not everyone has had cradle-to-grave financial / retirement planning. For god’s sake, lower the clawback level – such a no- brainer!

  4. My preference would be to lower the clawback limit to around the $58,000 mark. Because anyone with an income higher than that doesn’t really need OAS.

    But I am not in favour of raising the retirement age because although for many lifespan has increased, quality of life in the sense of good health has not necessarily increased at the same pace. It’s not fair to deprive people of a bit of R & R in the few healthy years they have remaining.

  5. Retirement age(for collecting OAS) should remain as it is. This country has cut back many services over the years therefore volunteers are required within many organizations. If people are required to work until they drop then service organizations will suffer accordingly. People won’t be volunteering when they have minimal healthy retirement years left. There are many avenues to cutting cost, among them definitely is MP’s pensions. In addition, I think that immigrants to this country should be citizens for twenty years before qualifying. Seniors who have worked a lifetime to earn retirement should be left alone.

  6. Many jobs in Canada are manual jobs in a very harsh climate. After over 40 years in such jobs these workers are often forced into retirement at 65 or earlier for health reasons. The OAS may be a significant portion of their retirement income. I’m surprised that the conservatives whose votes often come from blue collar workers would impose such a change. Lowering the clawback would make everyone much happier. I used to vote conservative but after Steven Harper made this very important domestic announcement overseas I will no longer support this party. He showed no respect to the people of this country.

  7. Definitely reduce the clawback threshold to at least 2009 levels or lower. That way you spare the poor pensioners for which the OAS was actually set up for. 2% of 65 plus not receiving any OAS is far to small a percentage.

  8. How short sighted! If you increase qualification for pension from 65 to 67 you create, are you creating jobs for the young generation that needs them so badly? How stupid! In a wealthy nation like Canada (based on GNP) we should be encouraging early retirement so as to create employment. Yes, when a person retires, he is creating a space for another worker. Besides this, it’s a cynical statement on the part of the Conservatives, that is counting on people dying during those years so less money will be paid out. Harper’s comparison to the UK raising from 65 to 67 and generalizing that everyone is doing it is nonsense! He didn’t tell you that in France the age was raised from 60 to 62 (yes, that’s right) and in Sweden, Holland, Belgium, Denmark and Finland it’s 65. In Finland’s case you can take a reduced pension as early as 62 and an increased one if deferred. Switzerland is the most progressive. The amount of the old age pension at 65 must amount to 60% of the beneficiary’s last income to allow pensioners to maintain a standard of living they are accustomed to. Don’t short change the next generations. Remember the Conservative government that fell on just such a plan? Maybe Harper forgot the history of Mulroney’s Conservatives.

  9. I am 64 and I think the goverments of this country could have and should have done something 30 years ago when they knew this was comeing. Where people could have paid more into pension plans. The only wayto pay more was to have a high paying job where we where paying higher taxes. Not everyone could get those high paying jobs. We are all suppose to be equal I love this country I helped to build it.
    John

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