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Give seniors the option to start OAS later

Posted by on Mar 20, 2012 in Moneyville, Retirement | 0 comments

By Sheryl Smolkin
Read this article and comments at moneyville.ca
I was intrigued when I read a pre-budget paper from the C.D. Howe Institute suggesting that instead of upping the age of eligibility for Old Age Security to age 67, the federal government should give recipients the option to choose richer payments later from the OAS and Guaranteed Income programs.Earlier this year, there was a predictable uproar when Prime Minister Stephen Harper floated the idea of delaying OAS eligibility for two years. Finance Minister Jim Flaherty subsequently said changes won’t happen until at least 2020, but it is expected that the federal government’s template for change will be revealed in the March 29th budget.

 Related: Pension changes 8 years away Flaherty says

 

Letting OAS and GIS recipients delay take-up and rewarding those who do, could contain program costs in a way that is less stressful to recipients than increasing the universal eligibility age, says Bill Robson, CEO of the C.D. Howe Institute. He also believes this approach is less discouraging to work and saving than intensifying clawbacks (currently 15 cents per dollar of taxable income above $69,500; benefit is reduced to zero when taxable income surpasses $112,800).

Modeled on the successful mid-1990s reforms to the Canada and Quebec Pension Plans, the C.D. Howe paper assumes potential recipients could choose to start receiving benefits at age 65 as they do now, or wait up to five more years and get benefits that are larger by 0.7 per cent per month of delay.

 

Related: Most Canadians expect to work beyond age 66 new poll finds

 

Seniors would gain a valuable retirement planning tool. Those with little income subject to clawbacks and/or unable to work would likely choose to start payments at the current eligibility age of 65. But Canadians with RRSPs may choose to spend the money in their RRSPs by age 70, and subsequently collect OAS and begin drawing down non-registered savings.

The report models the impact of this alternative approach based on a “CPP-like Scenario” in which take-up of actuarially adjusted OAS and GIS roughly resemble that of the CPP, with 96 per cent of each age cohort starting their benefits at age 65, and .8 per cent of the rest starting successively at 66, 67, 68, 69 and 70. The calculations reveal that later take up by part of each new age group would help the federal government meet cost cutting targets by keeping total OAS and GIS benefits paid out lower until at least 2031.
This proposal seems very sensible and certainly worthy of further study.

Raising the age limits across the board for OAS and GIS eligibility could force people on provincial social assistance programs, persons with disabilities, immigrants and newcomers to live below the poverty line for two more years.

 

Related: Why raising OAS to 67 doesn’t make sense

 

However giving all Canadians the option to delay receiving OAS and GIS would give everybody more choice, so the people who really depend on these benefits can still get them sooner rather than later.

What do you think?


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