Think-tank report urges stricter OAS eligibility

A new report calling on the government to lower the income level at which Old Age Security (OAS) clawbacks kick in is certain to upset the grey-hair set who are closest to the issue. However, it should really be a wake up call for those decades away from retirement.

After all, more changes to the OAS program aren’t expected to come soon, especially after the federal government increased the eligibility age to 67 from 65 in the 2012 budget – and that doesn’t even start until 2023.

It’s people under age 50 that should be paying attention to the impact pending changes to the OAS will have on their retirement plans. They should also consider what else the government may need to do down the road to handle the rising costs that will come with Canada's aging Baby Boomer population, particularly as Canadians are living longer than ever before.

The Fraser Institute report suggests money could be saved by paying full OAS benefits to seniors with up to $51,100 in annual income, and partial payments for those with incomes between $51,100 and $94,787. That compares to the current system, where people age 65 and older can earn up to $70,954 and still receive full OAS payments, while seniors with incomes up to $114,670 receive partial payments.

“Ottawa could find savings within OAS by re-evaluating payments paid to higher income seniors and reforming the eligibility criteria. This would allow improved targeting of benefits for low-income seniors, particularly those living in high-cost regions, thereby helping seniors struggling with low-incomes,” says Jason Clemens, who wrote the report alongside Niels Veldhuis and Milagros Palacios.

About 17.5 per cent of Canada’s seniors, or about 950,000 people, have incomes greater than $50,000 annually, the report says. That compares to the average annual wage of a typical Canadian worker, which is $45,776. The report also notes that two seniors living together with a household income of $141,908 could potentially qualify for full OAS payments.

By better targeting OAS benefits, the Fraser Institute estimates the government could save $730 million, a figure that would increase over time as a higher proportion of Canadians become eligible for retirement programs.

“With limited resources and budget deficits across the country, governments must refocus their efforts and spending on key priorities. Redistributing tax money from workers to seniors with incomes higher than the national average is unsound policy," the report authors say.

It's the generations that come after the Baby Boomers that should be concerned, and consider the potential that government retirement programs will be slashed, or may not be there at all when they grow old.

The Fraser Institute suggests the government help address this concern by boosting the limits for retirement savings programs, such as Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs).

“Simply put, some portion of the savings [from proposed OAS changes] could be used to increase the limits for deferred tax accounts like RRSPs and registered pensions,” the report says. “Additionally, the limit for tax free savings accounts, which are not tax deferred, could also be increased to provide Canadians with greater choices regarding the mix of their savings.”

A CIBC survey released in 2012, shows about 25 per cent of Canadians between age 45 to 54 believed government payments would be a key source of income. Another 25 per cent said they are counting on private pensions as their primary source of income in retirement, while 30 per cent said they planned to rely primarily on their own savings. The same survey also shows about two-thirds of Canadians aged 45 to 54 are already planning on working past age 65. Of those, 43 per cent said they plan to work part-time, while 22 per cent are considering consulting.