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Retirement Planning

Changes to Old Age Security (OAS)

April 03, 2013

What is OAS It’s an income support program available to all Canadians over age 65. Benefits depend on how long you have lived in Canada after the age of 18. To qualify for the maximum you have to have lived in Canada 40 years after age 18; if you are a resident less than 10 years you do not qualify. Applicants who have lived in Canada between 10 and 40 years receive a pro-rated benefit. Maximum OAS as of January 2013 is $546.07. OAS pensions, as well as companion programs Guaranteed Income Supplement (GIS) and Allowances available to low-income Canadians, are adjusted quarterly to reflect any increases in inflation. OAS payments are taxable. Seniors who make over $69,562 (2012) are subject to a ‘claw-back’ of benefits.
 
Changes: In Budget 2012, the federal government introduced measures to gradually change the eligibility age for the Old Age Security (OAS) from 65 to 67 starting in April 2023. The eleven-year advance notification and subsequent six-year phase-in period will allow those affected by these changes time to make adjustments to their retirement plans. The phase-in period will begin by gradually raising the eligibility age by one month every three months, starting on April 1, 2023. By January 2029, the age of eligibility for the OAS and GIS will be 67 and the ages at which the Allowance and the Allowance for Survivor are provided will be ages 62-66. The changes to the age of eligibility for the OAS program introduced in Budget 2012 will not affect anyone currently receiving benefits.
 
Why the changes? The federal government cites the following reasons: 1) Canada’s population is aging; 2) the OAS program, in its current form, is unsustainable; 3) changes are required to ensure fairness for taxpayers; 4) Canada’s labour market and economy needs to adapt to an aging society to remain strong. Of note is that today, there are four working-age Canadians for every senior, by 2030, projections suggest that there will only be two.
 
Other changes. The federal government also introduced a voluntary deferral of the OAS pension, starting in July 2013, giving Canadian residents the option to defer take-up of their OAS pension by up to five years past the age of eligibility, and subsequently receive a higher, actuarially adjusted pension. In addition, to improve services for seniors, the Government of Canada will start a proactive enrolment process that will remove the need for many seniors to apply for the OAS pension and the GIS.
 
My thoughts. I admire the federal government’s willingness to take this on now rather than burying their heads in the sand as many European countries have done. This change to OAS, combined with changes to Canada Pension Plan in 2011 (refer to article for CPP changes) will help make these programs more sustainable in the long term. As a result, over the next 10-15 years, ‘normal’ retirement date will change from age 65 to age 67.
 


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