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:
- Remove the indexing of OAS
- Lower the benefit by a little
- Lower the OAS clawback threshold
- 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.