Is Our Old Age Security Program Sustainable?
On January 27, 2012 Prime Minister Stephen Harper announced that changes would be made to the Old Age Security program. It appears the government is planning to gradually change the OAS system so that the age of eligibility is raised to 67 from age 65.
Opposition Liberals and NDP say such a move would financially cripple millions of Canadians.
What is Old Age Security?
The Old Age Security program was introduced in 1952. It is one of the cornerstones of Canada’s retirement income system. Retirement benefits include OAS, Guaranteed Income Supplement (GIS), Allowance and Allowance for the survivor.
In 1965 the age of eligibility was dropped from age 70 to age 65.
Employment history is not a factor in determining eligibility for OAS. Only residency requirements have to be met. Full benefits are paid to those who have lived in Canada for at least 40 years after turning 18.
Partial payments are made to pensioners who have lived in Canada for at least 10 years after age 18. You can receive some benefits if you move outside of Canada and even indefinitely if you have lived here for at least 20 years.
Old Age Security is also income based. Clawbacks of the benefits paid start when income hits $69,562 and payments are totally eliminated at $112,772.
Is the Program Sustainable?
OAS is paid from general tax revenues. It is estimated that by the year 2030 the number of seniors will climb to 9.3 million. Life expectancy has also risen by about 20 years since inception.
The program now costs about $4.7 billion and could almost triple to $108 billion in the years to come. The PM apparently wants to ensure the sustainability of our social programs that will become stretched thin by increasing numbers and longer lives.
Opposition
Susan Eng, Vice President of Seniors Advocacy, is a spokesperson for CARP. She claims that this is the wrong time and the wrong target. The government could have made changes to the program many years ago.
Pensioners have paid their taxes and expect to have this income supplement.
Many people will have to work an extra two years or struggle with a limited income without this safety net.
Personally, I would suggest reviewing the gold-plated MP pensions first.
It remains to be seen what will be decided. One thing is for sure; if these changes are enacted, practically everyone’s retirement plan will have to be reviewed and probably adjusted – work longer, save more, or live on a reduced income.
Entitlements are always a point of discussion when there are budget issues, but they never cut the entitlements of the politicians. Why is that? The simple answer is they would never get enough votes to do it. The retirement for politicians is usually the richest, however there are very few of them. Not enough impact to be worthwhile. I think it would be symbolic to show the rest of the country they are serious.
@krantcents: You are so right. It would show that they (the politicians) are all on the same page with regards to making changes to the system.
I agree that something has to be done to ensure the sustainability of the pension programs but you can’t just arbitrarily change the age of eligibility when the business world still uses the age of 65 to retire their workers. What happens in this case? I know that $500 a month may not seem like much but it can make the difference of whether to pay rent or buy groceries to some.
The truth is that seniors need compassion and more money than they presently receive to get them out of poverty. The money that money can be found in many other areas.
@Victoria-Tienda bebe: Social programs were put in place to assist people at the lower income levels. Unfortunately they are also the first to be reduced.
I also read about this last weekend and I completely agree about your point about cutting their pensions.
For the amount of work politician do, and the amount of time they actually sit in parliament, you would think they would feel guilty collecting an amazing pension after 8 years of service.
This conversation got me so mad. I have an upcoming article about it but the Coles Notes version goes:
-OAS is not CPP
-OAS was never EVER meant to be paid out for 20+ years
-Our current demographic pyramid will NOT support OAS payments.
-OAS will not completely disappear, but be phased downwards.
-This is another example of the baby boomer generation crying “whoa is me” and effectively crippling the young 20 year olds of today.
Unfortunately none of us vote, so I’m sure Harper will do whatever the Boomers want, it’s just ridiculous how people are running around going, “He’s going to take my pension away.” No he isn’t, how about doing your part to make this country solvent again? You could have always planned for your own retirement instead of relying on the government anyway!
@My University Money: While agree with many of your points above, I get pretty fed up with all the Gen X, Y’s and Z’s moaning about how the boomers are becoming such a drain on society.
The governments knew this was a huge demographic back in the 1960’s when they had to scramble to build more schools and hire teachers when a typical classroom held 40 – 45 kids. The trouble is they like to deal with immediate problems rather than look at what will be happening in the future – not unlike most young adults just starting out.
I paid for my own education without benefit of student loans and have worked for almost 40 years and paid my taxes (I’m still paying education taxes even though I haven’t had a child in school for 15 years). I expect to still be paying taxes for the rest of my life so the cost won’t be solely on your poor overburdened shoulders. Also, we didn’t have the benefits of RRSPs and TFSAs earlier on.
While I believe many boomers will be able to finance their retirements in their own personal ways, there will always be poor and disadvantaged people in every generation. Do you want to just leave them hanging because there might not be enough money for you? (BTW whoa is for horses, the term is “Woe is me” which sounds like your complaint – not mine.)
Great point on the Woe v Whoa Boomer, whoa is what I’m saying as the debt goes off the rails, woe is what I feel as a result of this whole decision process.
I also agree with some of what you have said, however to ignore the fundamental costs of today’s world relative to those that the Boomers grew up in is as equally irresponsible as saying that Gen Yers are whiners. Assuming your name sake is descriptive of your demographic status, your education costs (when inflation adjusted) were MUCH lower than today’s generation. The average wage today in REAL terms isn’t even close to what it was in the 60s and 70s. In terms of paying taxes with children in school, I’ll give you the same argument I give to people who have no children – an educated society benefits everyone around them! I would say your energy would be much better invested in making sure your tax dollars are used properly and efficiently within the education system as opposed to complaining about them.
Obviously I don’t want poor and disadvantage seniors, but right now, seniors who earn 40-60K are still getting OAS at 65. These people are not poor. When people who are making more than the median wage are receiving a supplemental government benefit that was never meant to be paid out for as long as it is, then I think I have a right to complain at the expense of the rest of the system.
I could just as easily infer that Boomers as a group don’t care about today’s youth with spiralling debt problems yada yada. Don’t they want to care for the growing numbers of TRULY poor and disadvantaged in today’s society?
BTW, never meant for this debate to get too personal. At heart, I’m an anti-tax, personal responsibility guy. Keep up the great work here.
I don’t mean to get into a generational war here. Everyone thinks that other people have it better – the grass is greener etc, etc. and I’m not complaining about paying my share of taxes. As you say, it’s for the greater good.
To get back to the subject, I definitely agree that changes need to be made to OAS. People who have incomes between $60,000 and $113,000 don’t need this hand out. Personally I would also look at cutting off all those people who move out of the country as well. Living in Canada should not be the sole requirement of receiving money. And, no, people are not going to like that reasoning. It reminds me of when the government cut the universal family allowance and changed it to the Childs Tax Benefit for lower income families. All those people earning in excess of $50,000 a year crying that they needed that monthly cheque of$21 to buy their kids shoes!
My point was that by just raising the eligibility age by 2 years to save money can cause hardship for a lot of people who need it.
Thanks for your readership and support 🙂
I am a boomer, but agree with My University Money. We have left the future generation debt levels that are unsustainable, and if we carry on in the same manner, will get even worse.
One big problem is pensions. Pensions were started when few people lived beyond age 65. Now people expect to be in retirement (or unproductive) for 20 to 30 years at the end of their lives. Life expectancy is still slow increasing.
We expect fewer and fewer young people to support us. I think that the boomers must to do more to support themselves. However, I find few people, old or young who even what to hear this.
Our parent’s left us a different legacy. Lots of people do not realize the incredible number of jobs the economy produced for the baby boomers. Not only was there lots of us, but the workforce was moving from one where women seldom worked to one where women expected jobs out of school the say way men did.
Entitlements are always a point of discussion when there are budget issues, but they never cut the entitlements of the politicians. Why is that? The simple answer is they would never get enough votes to do it. The retirement for politicians is usually the richest, however there are very few of them. Not enough impact to be worthwhile. I think it would be symbolic to show the rest of the country they are serious.
more money than they presently receive to get them out of poverty. The money that money can be found in many other areas.
Regards.
This is typical of the PC government. You people voted for them and look what happened.
@Richard: Who are you people?
We don’t have the same options available in the states and The options we have are many and very confusing. I have left it up to my Dad. I give him money and he invests it. I am fortunate to have a father who is an FC.
People 65 and over are still working and are able to collect OAS while they are employed. As long as people don’t make over $100,000, they can collect. Why pay this out to people still in the workforce and making up to that much. I have never earned that much…..not even close. It should go to retired seniors who need it because they may not have any other income.
@John: I suspect OAS will eventually become a mean-tested program as it was to begin with. It certainly will not be sustainable for the long term otherwise.