Old Age Security - Changes Are Coming

Old Age Security (OAS) is a federal public pension plan designed to provide a basic income for senior Canadian residents. In addition to the OAS Retirement Pension, supplementary benefits are provided for low-income individuals and families. Under the current rules, a resident can apply to begin receiving the OAS Retirement Pension at age 65. The maximum monthly benefit from Retirement Pension is currently $540.12, payable to an eligible applicant who has lived in Canada for at least 40 years since age 18. For anyone who has lived in Canada for less time, the amount is pro-rated. Payments from OAS are taxable and adjusted quarterly for inflation.

What Are the Proposed Changes?
The 2012 federal budget included a proposal for several changes to the OAS Retirement Pension:

1. Age of Eligibility. For Canadian residents born after April 1958, the age of eligibility is increasing. The following table illustrates how this change will be introduced:

The table shows that a person born in June or July of 1960 would become eligible for OAS at age 66 and 2 months. A person born any time after January 1962 would become eligible at age 67.

2. Voluntary Deferral. Starting July 2013, applicants can receive higher payments by deferring receipt of the pension beyond their date of eligibility. For each month of deferral, the pension will be increased by 0.6%, to a maximum 36% for five years of deferral. Based on the current payment rates, a fully-qualified applicant who waits until age 70 to start will receive $734.56 per month instead of $540.12.

3. Proactive Enrolment. Starting in 2013 (and phased in over three years) the government will enrol certain eligible seniors in the OAS Retirement Pension and supplementary benefits automatically. This will eliminate the need for many seniors to complete OAS applications. Those who are eligible will be notified via mail. The government has not yet made clear exactly who will qualify for proactive enrolment.

Why Have These Changes Been Proposed?

The number of retired people is increasing, while the number of working people is decreasing. This is putting a strain on pension plans, requiring changes to be made to ensure that they can continue to provide benefits for the long-term. The proposed changes to OAS are part of the federal government’s plan to reduce costs for social benefits. (Similar changes are already underway for the Canada Pension Plan.)

How Might This Affect You?

People born after April 1958 can expect to wait longer – up to two years – to be eligible for Old Age Security benefits. The effect on an individual’s retirement will depend on his or her income needs and other sources of income at the time. Generally speaking, high and middle-income Canadian residents with adequate retirement savings should not expect a change in their lifestyle in retirement. However, people who depend on OAS for a significant portion of their retirement income may be affected significantly.

Regardless of your situation, you should consult a Credit Union Certified Financial Planner who can help you ascertain your retirement needs and resources. This can provide clarity, reduce anxiety and help you make informed decisions about your future.