Voluntary deferral of OAS
As part of the 2012 federal budget, the government announced three changes to Old Age Security (OAS)program.
- The age of eligibility for OAS will gradually increase from age 65 to age 67 (Note – this change was subsequently revoked by the Liberal government, prior to implementation).
- You will be able to defer taking your OAS pension by up to five years in order to receive a higher monthly pension.
- The government will start a proactive enrolment process that will eliminate the need for many people to apply for OAS and the GIS (Guaranteed Income Supplement).
Related article: Three changes to OAS
The increase in the eligibility age doesn’t start to take effect until April 2023, with full implementation by January 2029. (Note – as mentioned above, the increasing age eligibility was subsequently revoked prior to implementation).
The proactive enrollment for OAS is supposed to be implemented in a phased-in approach from 2013 to 2016, but I haven’t seen much detail on it yet. In any case, I see the impact of this initiative as minimal.
The voluntary deferral of OAS is effective as of July 2013 and the impact can be quite significant, so this change is the focus of my article today!
What is meant by voluntary deferral of OAS?
Voluntary deferral means delaying your receipt of OAS pension in order to receive a larger pension at a later date. The term “voluntary” is perhaps a bit of a misnomer, however, since the larger benefit will be payable whether the delay was intentional or just an oversight.
Who is affected by the voluntary deferral of OAS initiative?
Anyone under age 70 and not in receipt of OAS as of July 2013 is potentially affected by this initiative. You will be able to defer your OAS whether you’re eligible for the full OAS or just a partial OAS, although you cannot “double-dip” by waiting. (I’ll explain this in more detail later.) Voluntary deferral does not affect the income-tested benefits of GIS, the Allowance or the Allowance for the Survivor.
What is the impact of voluntary deferral of OAS?
For each month of “valid” deferral, your OAS pension will be increased by 0.6%. The maximum deferral is 5 years, which would increase your OAS pension by 36%. I used the qualifier of valid deferral, because there is no increase in your pension in the following situations:
- For any period of time before July 2013
- For any month after you turn 70 years of age
- For any month before you meet the residence requirements for a full OAS
- For any month before you reach any specific step in the 1/40ths eligibility for a partial OAS (This is what I referred to as double-dipping above, and which I’ll explain more fully in the third example below.)
Here is a chart that shows the dollar impact of deferral on a full OAS pension (using April 2020 rates), as well as the breakeven age (the age at which you would begin to be ahead if you deferred the start of your OAS pension beyond age 65.)
| Age 65 | Age 66 | Age 67 | Age 68 | Age 69 | Age 70 | |
|---|---|---|---|---|---|---|
| Monthly amount | $713.34 | $764.70 | $816.06 | $867.42 | $918.78 | $970.14 |
| monthly increase | $51.36 | $102.72 | $154.08 | $205.44 | $256.80 | |
| Breakeven age | n/a | 80 | 81 | 82 | 83 | 84 |
The above chart demonstrates that the basic premise of voluntary deferral of OAS is fairly easy to understand and evaluate. However, due to the restriction of no deferral before July 2013, and no “double-dipping” on meeting the residence requirements for full or partial OAS, the actual implementation is slightly more complex.
Here are some examples that may help to demonstrate those complexities.
EXAMPLE 1
In this example, let’s say that Joe turns 71 in July 2015 and he finally decides to apply for his OAS. (He may have had his own reasons for not applying earlier, or he may just not have been aware of OAS until then.) Joe will be limited by both the July 2013 restriction and the age 70 restriction above, so his valid deferral is just 12 months or 7.2% overall. Luckily for Joe, however, OAS provides for a maximum of one year of retroactivity for a late application, so at least he is compensated in that way for his delay beyond age 70.
EXAMPLE 2
In this example, let’s say that Mary lived in Canada from birth to age 30 and then she left Canada for work reasons. She retired and returned to Canada at age 60 in June 2010. She inquires about OAS when she turns 65 and is told that in one year when she turns age 66, she will be eligible for a full OAS under the “three-for-one” rule. (She would also have other choices for an immediate partial OAS pension, but let’s ignore that for now.) When she turns age 66 in June 2016, she is eligible for a full OAS, but she doesn’t receive any increase for voluntary deferral, because she didn’t meet the residence rules for a full OAS until that date.
EXAMPLE 3
In this example, let’s use Mary again, but let’s have her return to Canada at age 65 in June 2015. At that time she is eligible for a partial OAS pension of 12/40ths immediately, or she can wait six more years until age 71 to qualify for a full OAS. She initially decides to wait for a full OAS, but she decides a year and a half later (for health or financial reasons) that she wants to start receiving her OAS immediately. At that point, she would have 13.5 years of residence in Canada after age 18, and she would have two choices as follows:
- A full year of retroactivity at 12/40ths partial OAS, plus a six-month deferral increase of 3.6%
- Six months of retroactivity at 13/40ths partial OAS with no deferral increase
As mentioned above, this third example demonstrates that if you delay applying for your OAS, you can increase your partial pension by adding extra 40ths, or you can increase your pension by the voluntary deferral percentage, but you can’t “double-dip” and use the same period of time to count for both purposes.
Comments
Good article.
Have you or Jim looked at the pros & cons of delaying CPP & OAP specifically for inflation protection?
Jim has had earlier articles advocating “take it early” & others have argued to delay.
In our case the gov’t $$$ will be the only indexed retirement payments. The rest will be RRSP, TFSA, & non registered investments, probably with some portion in annuities.
Those of us entering retirement remember inflation in the 70’s all too well.
By delaying to 70 we would have enough from gov’t. only (probably with a purchased annuity as well) to do OK. Especially given that spending drops in peoples 70’s.
What do you think? Might a topic for a future article?
Thanks
Grant
Grant
I’ve heard that suggestion before, but I’m going to stick to what I know best (CPP and OAS legislation and calculations) and I’ll leave it to Jim to comment on retirement planning scenarios. Thanks for reading!
My total net income for 2019 is 22362.00 including 6586 pension from india in CDN dollars. I turned 65 on October 15 2020. I lived in canada 14 years. My wife turned 63 on October 04 2020. She is also here for 14 years. How much I will get OAS &GIS. And how much my wife will get allowance. Thanks. Waiting for your reply
Hi Satish – Aside from your pension from India, what other income sources/amounts did you have for 2019? Does your wife have any income?
If you think you will live a very long life, you might argue that delaying CPP makes sense. That being said, the MATH would tell you otherwise.
In terms of inflation, I have no idea what the future will hold but in my humble opinion, I can’t see inflation of the 70’s coming back. In the 70’s boomers were all working, making money and spending it which attributed to the inflationary period.
Boomers are now retiring. Often this means spending less, not more because incomes will be lower in retirement than pre-retirement.
In the end, do what you feel is best for you and your situation. Good luck!
Agree — it’s a stretch to think of 1970’s style inflation coming back, but I think one should at least plan for inflation within the Inflation-Control Target range followed by the Bank of Canada (currently 1% to 3%, with 2% midpoint being the specific target.)
On the other hand, I’d be interested in seeing how relevant the CPI actually is to retirees? The basket of products used to calculate the CPI is representative of Canadian consumers on average, which means it isn’t very representative of a specific subgroup like retirees that have different spending patterns. i.e. the CPI may be under- or over-stating the effect of inflation from a retiree’s perspective.
I think the 90s is the comparison you want here, not the “stagflation” of the 1970s when wage and price controls were implemented. Good to check your facts.
Hi Doug / Jim
Thank you for mentioning that the federal government in the 2012 budget announced that they will start a proactive enrolment process that will eliminate the need for many people to apply for OAS and GIS.
In my field, I see delays receiving OAS or GIS payments because the paperwork is not received or is incomplete because of missing information. Some of these cases involve people who do not have a fixed address, are ill or incapable of completing the application necessary to qualify for income benefits.
I don’t believe the government should allow the voluntary deferral of OAS. By the time someone is 65 years of age and having contributed to the economy for much of their normal working years (18-65) this benefit should simply be paid out.
Your article highlights the financial benefits of the deferral of OAS and the breakeven points. The breakeven age ranges from 80 to 84. It would be great if you could comment on the percentage of males and females expected to live long enough to benefit from the deferral of OAS.
I am in the 100% claw back club right now. I am also one who was advised that my OAS payment would start automatically this year at 65. I ignored that little notice, just put it in the file. My accountant told me very specifically to not collect OAS this year. I called OAS to make sure, that is when I was reminded of my situation – the automatic part. I sent a letter say do not pay, which was followed up by an “are you sure?” letter which I just sent in.
So if I took the benefit this year, I would pay a high tax rate on this years benefit, and I believe I would lose the benefit for for following year when my income could be substantially lower and I might like to have the benefit. – I think.
I don’t have a problem with applying later, as they will make it retroactive 11 months if required.
Don
Hi Doug
Thanks for the great series of articles on pensions. Most informative. I ran some numbers on Excel to check the breakeven age using my own numbers for CPP and OAS. What I found interesting was what happened when I included a modest return on investment of 2.5% (based on an expected return of 4.5% less 2% for inflation). I think that to really compare the breakevens fairly, that the time value of money be included. The results added six additional years to the breakeven age for OAS for example. Higher rates would only further the effect.
Garth
Garth
You certainly raise a valid point, but getting everybody to agree on what might be reasonable numbers to use for inflation and/or for rate of investment is difficult. And many people who are making this decision will be using the OAS for living expenses rather than for investment purposes, so ignoring those factors is probably appropriate.
Expected Annual income is a huge factor for me when deciding when I should begin to receive the OAS benefit. I plan to retire at the end of June 2015 when I will be 66. I intend to apply for the OAS benefit to only begin in January 2016. If I applied to receive OAS back when I turned 65 in 2014 or even choose to receive OAS in July 2015 when I retire, my annual incomes for 2014 and 2015 would be above the income threshold and most, if not all, of this OAS benefit would be ‘clawed back’. So I am deferring the start of OAS to January 2016 when my annual income should NOT trigger any clawback. The increased OAS benefit by delaying my OAS start for 19 months has a much shorter breakeven point (Age 68.3) in this scenario because I need to recover only the portion of the missed OAS benefit that I would have actually KEPT and not the entire OAS benefit paid initially since most of this benefit would have been permanently clawed back.
Another benefit of delaying OAS until the year when annual income falls to within the income threshold is that there will be no clawback carry over condition from the previous year. It is my understanding that anyone with a higher income receiving OAS and triggering the benefit clawback will have that clawback deduction automatically taken each month from their OAS benefit until an annual tax return is filed showing a lower annual income within the OAS income threshold. If I had triggered an OAS clawback condition it would be another 14 to 16 months of ‘clawback’ deductions taken from my OAS monthly payment until the clawback condition is removed. I would eventually get this unnecessary clawback deduction back but only after filing next year’s tax return.
For these reasons I have delayed my OAS start date until January of the year in which I will not trigger a clawback.
Richard
This is all good advice!
Question – if you take your OAS in Jan 2016, won’t they look at your (high) 2014 income and reduce or totally claw back your 2016 OAS?
Also, if you delay your OAS until Jan 2017, won’t they look at your 2015 high income?
Is it better to wait until July 2017, at which point they are looking at your lower 2016 income?
I am having a problem determining the answer to this question.
I think this article: https://retirehappy.ca/understanding-the-oas-clawback/ will answer your question.
I am eligible for OAS this coming Feb when I turn 65. Does anyone know if the claw-back is also deferred for Gov pensions if one elects to defer OAS?
Also what impact if any is there on Pension splitting
Don
The clawback only applies to OAS, so if you defer OAS there is nothing to claw back.
I don’t understand what your question about credit-splitting means.
Is it true that if you delay OAS you will never be eligible for GIS? or will you only be eligible once you start collecting OAS ? pending of course you income level makes you eligible for GIS in the first place?
Viviana
No, it’s not true. You can’t receive GIS during the delay in applying for OAS, but you can receive GIS as soon as you begin receiving OAS (depending on your income level as you suggest).
Doug,
In example #2, Mary returned to Canada at age 60 in 2010, that means that she was born in 1950. She left Canada at age 34, so in 1984.
My understanding from the esdc website is that she does not need to wait until she is 66 to qualify for a full pension:
“Full pension
You may qualify for a full Old Age Security pension if…
You were born on or before July 1, 1952, and
on July 1, 1977, you resided in Canada, or…”
Your article is dated October 2015, the esdc website was modified on 2016-04-05.
Am I misinterpreting this text?
On another note, I would argue that in the case of deferral for people who do not meet the residency requirements to qualify for a full pension at 65, opting for the extra 0.6% per month increase (or 7.2% per annum) is much better that adding 1/40th (or 2.5% per annum). Would you not agree?
Sam
Good spotting! I’ve made a correction to example #2. See if it makes sense now?
As to your second point, I agree IF the person has 14 or more years of residence in Canada when they turn age 65. If for instance, they only had 10 years in Canada when they turn age 65, waiting one year and claiming 11/40ths is a 10% increase for them compared to if they took 10/40ths plus a 7.2% increase for voluntary deferral.
There’s also the situation for a partial OAS when waiting only one month can give you an extra 40th, which would always be a better choice than taking the 0.6% increase under voluntary deferral.
Doug,
Now example 2 makes sense since you decreased the number of years of residence between Mary’s 18th birthday and the year she left Canada to 12 years. Those 12 years could make up (under the three-for-one rule) for 4 years only out of her missing 5 years to complete the 10 consecutive years in Canada before applying for OAS. So she needs to spend one more year.
However, 2 points:
– Example 3 should be modified since it still states that Mary, upon returning at age 65, is eligible for a partial OAS of 16/40th.
– Mary would be entitled to a full pension after spending a year only because she was born on or before July 1, 1952 and she resided in Canada on or before July 1, 1977. If that was not the case she would only be entitled to a partial OAS.
On another hand, you have a very good point: it is actually more beneficial to add 1/40th from the 10th and up to the 14th year and may be even beyond if only few months can add a 1/40th. Many scenarios may unfold as the rules for the 1/40th addition (after the 10th year) and the 0.6% per month increase (after 65) because of deferral are different (yearly vs monthly and partial linear vs direct linear). Thank you.
Sam
Thanks for pointing out that example #3 also needed to be changed after I corrected example #2. Hopefully they are both accurate now?
All 3 examples relate to someone born before 1952-07-01. Can you create some examples for those of us a little younger, eg immigrants with say 10 / 20 / 30 years of residence after age 18?
Thank you.
The impact of OAS deferral on a couple claiming GIS isn’t clear. A couple with only one member collecting OAS can collect GIS at an income much higher (42K) than a couple with both members collecting OAS (23K). Is it possible to defer OAS of one member in order to keep collecting GIS? I know that OAS income doesn’t enter into the GIS means-testing but it does enter into eligibility in this weird way.
Hi David – Yes, it would be possible for one spouse to defer OAS; which could enable the other spouse to receive GIS, as you point out.
Both of us turned 64 in 2017 and received letters from Service Canada saying we may be eligible for OAS and they included an application form.
We both want to defer OAS until age 70.
I’ve read in various places that Service Canada may automatically start some peoples OAS…. At least they started a project to do that.
I can’t find any definitive information on what I should do. Is simply not applying going to accomplish the deferral or do I need to formally tell them.
They send lots of paper surely its not too much to ask that they include a definitive statement on this issue, since they themselves say (on the website) they might automatically send it but then send us applications! The letter we received talks about deferral.
Doug or anyone else can you clarify? Thanks
I think I figured it out but still think they could be clearer.
I now have found there are two different letters sent out.
Our letters did not say we were selected for automatic enrollment….. so we will do nothing.
Hi Dave – I’m not 100% sure whether the automatic approval project is still being used or not, but I know that the automatic approval letter was pretty clear that you had to contact them if you wanted to defer and you didn’t need to apply or contact them if you wanted to receive OAS. You’re clearly in the group that has to apply if you want to receive it and will automatically be deferred if you don’t apply.
I was born in Poland in March 1949 and came to Canada in September 1990. I postponed receiving OAS up to January 2018. Service Canada calculate my OAS as 27/40 it means $396. I turn 65 in March 2014.
According to my understanding I should receive 23/40 of full amount + 45month x 0.6 for differal what is equal 27%.
Total amount should be $428 it means $337 x 1.27.
Is Service Canada right in this calculation?
Thanks in advance for answer.
Hi Antoni – You are 100% correct in your thinking. Service Canada is supposed to automatically give you the greater of those two choices, unless you choose the other option for some reason. Perhaps they were having troubles with their calculator that day? If you call them, I think they’ll correct it without any problem. Let me know if they don’t.
Hi Dough
Thanks for fast responding to my question.
I will send them letter to review it again because of disagreement
What did you hear back Antoni?
Hi Doug, do you happen to have a chart using the current 2018 rates? Also, if you defer your OAS and die before you sign up to collect it, is your spouse still able to apply for survivor benefits?
Re: “…you cannot double dip by waiting…”:
Just before I read this article, I had a phone conversation with a government employee at Old Age Security, and was explicitly told I would be entitled to “double dip” in the following simplified scenario:
1. On Nov. 1, 2019, I turn 65 years old.
2. My last full year residing in Canada was 2001(age 47).
3. On my 65th birthday, I will not qualify for a full pension, but will qualify for a partial pension of approximately 30/40th’s.
4. I am entitled to defer my pension until age 70, and thereby earn an extra .6% for each month I defer (to the max. 36%).
5. If I were to become a resident of Canada on my 65th birthday, I could also earn another 5 years on my partial pension, raising it to 35/40th’s of the full pension.
6. If I applied for my pension to commence on my 70th birthday, I would receive 35/40th’s x (the full pension + 36%), OR I could apply one month after my 70th birthday for a retroactive payment of my previous 11 months of pension, and that payment, as well as my partial pension going forward, would be calculated without the additional .6%/month on those final 11 months.
Do you agree that “double dipping” is allowed in this scenario?
Hi Ellen – You were given incorrect information. If you return to Canada at age 65 and delay applying for OAS until age 70, you could choose:
a) 35/40ths with no increase and no retro;
b) 34/40ths with no increase but one year retro;
c) 30/40ths with a 36% increase and no retro; or
d) 30/40ths with a 28.8% increase and one year retro
Hi Doug, Great article and the examples you provided make sense. I was wondering if you can please explain how the “three-for-one” rule works as it applies to someone who is in the deferral age range (post 65) but not yet eligible for full OAS? It’s clear to me (as per your use of the term “double dipping” that someone who is not eligible for full OAS at 65 can only benefit in one way (qualifying for full OAS by deferring the requisite number of years) and not also benefit by the 0.6%/month increase as this is not a “valid” deferral. I tried perusing the government website and am too intimidated to dig into the Old Age Security Act. Any guidance will be much appreciated and any other links you can share with me would be appreciated as well.
Thank you kindly,
Jeff
Hi Jeff – The 3-for-1 rule rarely applies nowadays. Tell me your date of birth and what years you have resided in Canada and I’ll try to explain your options.
Hi Doug,
I was born in 1953 (turned 66 in 2019) and have lived in Canada for 39 years. I plan on collecting OAS in 2020. Thanks again!
Jeff
Hi Jeff – If you were born in 1953 the 3-for-1 rule doesn’t apply to you at all. In your situation you would definitely be better off counting your delay to 2020 as voluntary deferral and taking the increase of 0.6% per month, rather than counting the time as additional residence and increasing to 40/40ths.
Wonderful! Thank you kindly for your expertise.
I guess my next step is to contact Service Canada and ask them to apply the voluntary deferral increase as opposed to the additional year of residency increase (to get me up to 40/40).
Hi Jeff – They’re supposed to automatically give you whichever option is better for you, but sometimes they make a mistake.
Hi Doug,
You post and reply are really insightful. Here are my questions:
1. I was born in Jan 1951, I came to Canada in Aug 1989 to study at university on student visa and I got my permanent residence in May 1991 and also have been working since 1990 (university job), will my residence year for old age pension counted since Aug 1989? or May 1991 when I became landed?
2. Next year I will be 70 years old, but I plan to work until end of next year. Since my income would exceed old age income limit, I plan to defer my old age until Jul 2022 or even in 2023. Now how my old age pension will be calculated as I am still short of 40 residence year, can I do that or have to apply at age 70? Can I count my pre-65 year (1989-2016) as residence year, from 65-70(Feb 2016-Jan 2021) as 36% increase? How about my year after 70 (2021 and 2022), can that still be counted as residence year if I delay my old age pension until that time? Thank you very much for you advice.
Hi Lian
1) There is no clear cut answer to your first question, because the definition of residence in Canada is subjective and it may be interpreted differently, depending on who reviews your application. Some of the important points would be what was your original intent when you arrived in Canada; how soon did you apply for permanent residence; did you ever return to your home country while you were a student. etc…
2) The best way for you is likely to count your residence up to age 65 and take the voluntary deferral increase from age 65 to 70. Deferral past age 70 would be of no value to you under this scenario. Depending on how long you defer past age 70, you could count it all as residence until the age that you apply for OAS, but you wouldn’t qualify for any voluntary deferral increase in that case.
Doug,
Thank you very much for your advice. That is really helpful.
I’m aware that both CPP and OAS can be deferred once payments have already commenced as long as the request is submitted within 6 months of receiving your first months payment. I’m also aware that you have an additional 6 months to repay all monies received. There doesn’t seem to be a clear concise process to follow or form to fill out in order to request deferral of CPP and OAS subsequent to already receiving payments due to automatic enrolment. I have to assume there is a min 30 day lead time in order to be guaranteed any future payments will cease. Therefore I’m assuming that I will be receiving both CPP and OAS in September. It’s imperative that I get both applications submitted asap before receiving the 6th payment in October.
I’m wondering whether I can use the Defer OAS option on the My Service Canada portal. I know it can be used if you haven’t been selected to automatically start receiving OAS @ 65. But can it also be used to request deferral once already collecting? Any suggestions on where one can find the process documented for both CPP and OAS. When searching for either one on the My Service Canada site you get either 200+ or 300+ results, most of which, so far, are completely irrelevant.
Hi Mark – No special form is required in order to request cancellation of CPP and/or OAS benefits, and as far as I know no such form even exists. All that is required is that the request to cancel needs to be in writing, so that a very short letter with your signature is all that is necessary.
I did not apply for OAS but after my 65th birthday I received a letter saying my first cheque would arrive in August. I was quite surprised because I wanted to defer it which is why I did not apply for it. I spoke with someone at Service Canada & was told to fill out a form stating I wanted to defer it & mail it to them. She said I still would receive the August cheque but should not receive anything after this & to indicate the year I would be deferring it to (2022). I did this in August & now in Sept. I received another OAS cheque. Today, I received a letter from Service Canada saying that I could not apply for the benefit so far in advance & would have to wait until 11 months before I could apply for it. But, I’m already getting it!!! So frustrating dealing with these people!!!! Tomorrow will be another couple of hours on the phone with them, again explaining that I want to defer it.
Hi John – In order for you to have been approved for OAS without applying for it, you should have received a letter from Service Canada approx one year earlier (on or about your 64th birthday) advising you that you had been pre-approved for OAS. That letter would have told you that if you wanted to defer your OAS until after age 65, you had to write them in advance of your 65th birthday to request a deferral. Now that you have receive two payments already, you will have to request cancellation of your OAS (terminology is sometimes important) and you must do so within 6 months of receiving that first payment. Once your request for cancellation is accepted, you will have a further period of 6 months in which to repay all monies received from OAS in order for your cancellation to be fully effective. You may get lucky and convince them on the phone to accept your letter of deferral as being a letter requesting cancellation, but it sounds like they are very confused already, so the easiest thing might be just to submit a letter requesting cancellation and that you will reapply at some point in the future if/when you want your OAS to be effective.
(1) I am turning 70 on September 2021. When is the latest I can apply OAS assuming taking it before turning 71 on September 2022? Do I have to apply months ahead for them to do calculations.
(2) How government calculated my income/net income, which year of income tax they are based on?
Hi Karen – The latest that you can apply for your OAS for the approval date to be effective October 2021 is September 2022. Read this article to better understand the clawback:
https://retirehappy.ca/understanding-the-oas-clawback/
Hi, great post!
I have some questions.
How do you calculate the years in Canada, do you have to count each month or days in Canada? Do I have to show the passport page to prove? I recall they did not stamp one of the stamp either exit or entry long time ago. Or they will get info from border agency?
My husband has lived in Canada for 36 years when he becomes 65. So he can get 614.14×36/40=553.60 at 65 but If he defer to 69, he can either
553.60 x 28.8% = 713.04 or
He has fulfilled 40 years to have the full amount…which is 614.14???
I am very confused. Please let me know if this is correct.
Thanks for the positive feedback. Yes, you count each period of residence in Canada according to how many years, months and days it is, and then adding all of the periods of residence together.
Yes, you have correctly identified his two choices, so he would likely choose 36/40ths with the deferral increase.
Thank you so much for your reply.
Please keep up your good work.
Could you recommend article on how to plan/withdraw from RRSP/RRIF? What is the good strategy? Thank you!!
Hi
My wife turned 65 in August and we just got arund to applying for OAS (online). She asked for it to begin in September (which of course is in the past). It looks like it worked as when she checks her Service Canada account it shows a payment (4 mos worth) coming in Jan 2021. My question is: Would she get a T4A reflecting the Sept – Dec payments as 2020 income or would it all be on the T4A for 2021? I ask because we are trying to some income tax optimization and which case happens may influence a decision re making a withdrawal from an RRSP. Thanks for any guidance.
Hi Fred – The payment for Sept to Dec 2020 should be included on her T4A for 2021, because that’s the year when they will actually be received.
My spouse decided to defer OAS until age 70. She dropped into a Service Canada location about 7 months prior to her 65th birthday.
Her reasoning was simple. All of her OAS would be clawed back for at least the next four years. This will change at the end of that period. Better to accumulate an increase in OAS than to have it all clawed back for four years.
Will the new 10% increase for those 75+ be applied to the greater deferred OAS amount or the base amount at age 65?
Hi Mark – The Liberals haven’t provided any specific details as of yet, but assuming that it ever happens at all, I can only assume that it will be based on the actual amount of OAS that someone is eligible for, which would include any voluntary deferral increase or any reduction that are subject to if they are receiving a partial OAS for having less than 40 years of residence in Canada.
Hi Mark – After doing some further investigation, this 10% increase is effective July 2022 and it applies both to the base amount and to any deferral increase.
Hi Doug,
My question pertains to a scenario from Ellen and your response. I have copied the details to save your having to revisit them:
Ellen
Reply
Re: “…you cannot double dip by waiting…”:
Just before I read this article, I had a phone conversation with a government employee at Old Age Security, and was explicitly told I would be entitled to “double dip” in the following simplified scenario:
1. On Nov. 1, 2019, I turn 65 years old.
2. My last full year residing in Canada was 2001(age 47).
3. On my 65th birthday, I will not qualify for a full pension, but will qualify for a partial pension of approximately 30/40th’s.
4. I am entitled to defer my pension until age 70, and thereby earn an extra .6% for each
month I defer (to the max. 36%).
5. If I were to become a resident of Canada on my 65th birthday, I could also earn another 5 years on my partial pension, raising it to 35/40th’s of the full pension.
6. If I applied for my pension to commence on my 70th birthday, I would receive 35/40th’s x (the full pension + 36%), OR I could apply one month after my 70th birthday for a retroactive payment of my previous 11 months of pension, and that payment, as well as my partial pension going forward, would be calculated without the additional .6%/month on those final 11 months.
Do you agree that “double dipping” is allowed in this scenario?
Doug Runchey
Reply
Hi Ellen – You were given incorrect information. If you return to Canada at age 65 and delay applying for OAS until age 70, you could choose:
a) 35/40ths with no increase and no retro;
b) 34/40ths with no increase but one year retro;
c) 30/40ths with a 36% increase and no retro; or
d) 30/40ths with a 28.8% increase and one year retro
My question is as follows:
Per your answer (a) – would the 35/40ths be multiplied by the full OAS amount prevailing
in the year the recipient turns 70 or the full OAS amount for the year recipient turned 65?
Per your answer (c) – would the 30/40ths be multiplied by the full OAS amount prevailing in the year the recipient turned 65 plus 0.36% X the full OAS amount prevailing in the year the recipient turned 65?
Per my answer (a) the 35/40ths would use the full OAS amount payable at age 70.
Per my answer (c) the 30/40ths would use the full OAS amount payable at age 70, increased by 36%.
It looks like it is always better to take the 7.2%/year defferal bonus rather than adding a year to your OAS eligibility which is only 2.5%, except when you do not meet the 10-year residency requirement.
An increase of 1/40th of OAS isn’t always an increase of 2,5%. If you defer one year with 10/40ths, you could receive 11/40ths which would be 10% more than 10/40ths,
What is the 3-for-1 rule. I could not find anything about it in the Internet.
It’s one way of qualifying for full OAS without having resided in Canada for 40 years, but it only applies to someone who was born prior to July 1, 1952.
Hi Doug, if I will be turning 65 in Feb 2024. If I decide to defer both CPP and OAS until I’m 70, but my situation changes and I decide I need my pensions earlier, what is the process? If I decide to defer my CPP, do I need to notify the government, or just apply when I’m ready to receive it?
Hi Liz – If you defer CPP and/or OAS beyond age 65, whenever you decide you want them, you simply apply whenever you want them to start. Unless you receive notification that you have been automatically approved for CPP and/or OAS you don’t have to tell anyone that you want to defer them.
Hello Doug,
your post and the examples are great. They helped me understand the OAS better. 🙂
But I am still a litter confused about how the partial pension months are calculated.
I have been living in Canada since June 1, 1991 and have not bee away from Canada for more than 6 months. In March 2025 I will be 65.
Here are my questions:
1. If I take OAS immediately after age 65, the partial pension is 33/40ths and the payment will satr in April 2025. Is this correct?
2. In order to reach 34/40ths, What is the date I should apply for OAS?
Thank you very much!