I read a Family Finance article recently in the Financial Post that caught my eye. The article profiled “Philip”, a 78-year-old widower who lives well, who wants to avoid Old Age Security (OAS) clawbacks and leave some of his $1 million estate to his sons. Sounds like a great plan and like Philip’s health status, his income is to be admired, a healthy $79,450. While I’m happy for Philip’s well-being in his 70s, this article was a good reminder for me about the absurdity of our OAS program.
First up though, an Old Age Security primer as part of Financial Literacy Month #FLM2013:
Old Age Security 101
- A sum of money designed to provide a minimum quality of life for older Canadians.
- Canada’s largest pension program.
- A monthly payment available to most Canadians aged 65+ who meet legal status and residence requirements.
- You must apply to the program to receive the money.
- OAS is unrelated to employment history (in contrast to the Canada Pension Plan (CPP)).
- OAS is funded by tax revenues.
- OAS payments are indexed to inflation using the Consumer Price Index.
- Maximum monthly payments are around $550.
- Starting in April 2023, the age eligibility for Old Age Security (OAS) benefits will increase to age 67.
Another thing you should know about the OAS program, clawbacks occur if you make too much money.
Why OAS needs an overhaul
While the increased age limit (to age 67) will help keep our Old Age Security program sustainable, I believe it will be a challenge to keep the program afloat with millions of baby boomers in their 60s soon. More importantly, I think what constitutes “security” in old age must change. This year, if a seniors’ individual net income is over roughly $70,000, the OAS payment will be reduced. OAS is fully clawed back if the income is over $114,793. Back to Philip, his $79,450 income puts him over the 2013 clawback threshold. I have a hard time understanding how any senior making more money in retirement that most working Canadians needs any government security at all. To put it another way, working-class Canadians are financing the benefits of upper-class seniors.
That brings me to this, maybe my controversial wish for OAS: keep it afloat but overhaul this sacred cow so any individual senior making $70,000 or more is ineligible for this government program. Fix this program to focus on aging Canadians who need income security because they cannot live reasonably without it.
What’s your take on the OAS program? Do you think this program is messed up? Why isn’t OAS reform a bigger issue for Canadian taxpayers?