If the Harper government is dead set on changing Canada’s retirement system, simply raising the age of eligibility for Old Age Security recipients isn’t the way to go, according to some pension experts.
Finance Minister Jim Flaherty said the government would take future-focused action on retirement incomes during a press conference from Jerusalem on Thursday.
“The demographic challenge will bring substantial fiscal pressure on the long-term sustainability of these programs,” he said.
There is growing speculation the government will raise the OAS age of eligibility from age 65 to 67.
It is not clear when the government will release details about planned changes, but experts say it should think carefully about if and how they do it.
Currently Old Age Security is a universal program offered to all seniors regardless of income levels. There is however a claw-back for seniors who have a net income above $69,562 annually, but the entire amount isn’t clawed back until a pensioner’s annual income reaches $112,772.
Lowering the clawback level could be an alternative to changing the OAS eligibility age, said one of the many economists who believe the system is sustainable as is.
“The least harmful impact would be the tax back on higher income earners,” said Andrew Jackson, chief economist of the Canadian Labour Congress. “I’m all for higher taxes on higher income people anyways.”
FIVE THINGS YOU DIDN'T KNOW ABOUT OAS Qualifying age: The qualifying age for OAS was 70 up until 1969. The drop to age 65 was phased in over 5 years. Taxes: OAS is taxable as income. Clawback: Seniors making over $69,562 will have some OAS clawed back. The full amount isn’t taken back until income hits $112, 772. Only 2% of seniors have the full amount clawed back. Living abroad: Once OAS is approved, it may be paid indefinitely to seniors living abroad as long as they lived in Canada for at least 20 years after turning 18. Value: OAS makes up 13% of incomes for 65-69 year olds. About a third of OAS recipients also receive the income-tested GIS supplement. |
Currently only two per cent of pensioners have incomes high enough to see all of their OAS clawed back.
Better yet, according to Jackson, would be for the government to provide seniors with incentives to stay working longer if it expects them to foot the bill for OAS changes.
Just how unsustainable Old Age Security really is has been the subject of heated debate, with critics claiming the baby boomer population bulge will only push spending on the supplement up to 3.1 per cent of GDP from the 2.3 per cent it eats up now.
Other experts say whether a change to the OAS eligibility age is the best option depends on how it is done.
It’s an option that has already been taken by many of Canada’s G7 peers experiencing longer life expectancy, said Kevin Milligan, a professor of economics at the University of British Columbia.
“If we have to fund four more years of retirement we can do that by raising taxes, we can do that by working a little longer and it seems like there ought to be consideration of some mix of those two,” he said.
Doing it right means having a truly long frame and incorporating supports for the poorest.
In the United States, similar changes were passed into law in the 1980s, but didn’t take effect until 2002, for example.
“Planning is important because people want to plan their work life, plan their savings,” he said. “It’s fair and it’s necessary.
Milligan added it is also important for Finance Canada to be creative in how it provides for people who can’t work past the age of 65.
It’s an approach also supported by Bob Baldwin, an adviser for the Ontario Expert Commission on Pensions and author of the Institute for Research on Public Policy report “Pension Reform in Canada: A Guide to Fixing Our Futures Again.”
“There are options to raising the eligibility age for everyone,” said Baldwin. “I think the most obvious thing would be to decouple GIS from OAS. Clearly this doesn’t give the government as big a fiscal effect as they may want, but certainly it’s possible in principle to put a super-GIS in place payable from age 65.”
Baldwin also recommends that any changes allow for earlier OAS eligibility for vulnerable groups such as people on CPP disability or on provincial social assistance.
“For those people wanting to move it up to age 67, there is some obligation to figure who those people are and try to address their needs,” he said.
Other alternatives to reforming retirement income could actually mean bigger hits to seniors’ incomes, for example cutting the benefit amount to all ages or to deindex the benefit from inflation. Completely deindexing the benefit would mean a 36 per cent loss of purchasing power over 20 years.
Ian Lee at Carleton’s Sprott School of Business said OAS can’t be the only thing that changes, since it is just part of the growing economic pressure posed by an aging population.
“Raising the retirement age for OAS is not going to solve the problem, but it is a part of the puzzle to solving the problem of one-third of the boomers…leaving the workforce and starting to consume enormous amounts of health care, old age pensions, GIS and CPP.”
Alternatives to delaying OAS were also bandied about on Parliament Hill on Thursday as the NDP used an opposition day to forward a motion rejecting any Conservative plan to balance the budget on the backs of Canada’s seniors.
Irene Mathyssen, the party’s seniors’ critic, said the Conservatives could find savings by cutting their investments in prisons, fighter jets and corporate tax cuts or boosting funding in Pharmacare or home care.
“There are indeed choices,” she said. “This government is refusing to make the right choices.”
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