What are we to do with OAS eligibility? (Editor’s notes)

Government mulls changes that could impact how long Canadians choose to stay in the workforce
By Todd Humber
|Canadian HR Reporter|Last Updated: 02/13/2012

Messing with public pensions is a very poor diet for a politician to subsist on. Few issues get people more riled up than money they’ve been promised and seniors traditionally flock en masse to the voting booth.

But Prime Minister Stephen Harper started playing with that hot potato last month in a speech to the World Economic Forum in Switzerland. Canada’s aging population poses a threat to social programs, he said, and changes must be made to limit the growth of spending on retirement income programs.

Harper took pains to point out the Canada Pension Plan (CPP) is actuarially sound, leading to speculation the government has its sights set firmly on Old Age Security (OAS). Minister of Human Resources and Skills Development Diane Finley later confirmed in Parliament that OAS is indeed ripe for change, calling the current system unsustainable.

At press time, the government was short on details but the consensus is it’s mulling increasing the eligibility age for OAS payments from 65 to 67.

From an employer perspective, is raising the age for OAS benefits a good, bad or indifferent thing? It’s probably a little bit of all three.

Unlike CPP, which is a payroll tax, employers and employees don’t contribute (at least not directly) to OAS. It’s funded from general tax revenues. But the bill is hefty and is going to explode in the next couple of decades. Right now, about 4.9 million seniors receive OAS benefits at a cost of $36 billion. But by 2030, that figure is expected to balloon to 9.3 million seniors with a price tag of $108 billion.

So while employers and workers don’t pay directly into OAS, we all know there’s only one taxpayer — that additional money has to come from our pockets one way or another.

Then there’s the retirement angle. Would raising the age encourage workers to stay on the job longer? For most occupations, mandatory retirement exists only in history books. The same demographic time bomb Harper is concerned about regarding pension costs is also a worry for employers looking to retain talent.

Raising the OAS age takes away some of the incentive to retire at 65, which means workers might want (or need) to stay longer. But it also means workers you’re hoping will ride off into the sunset might stick around, not quite sure they can afford to leave until OAS cheques start arriving.

And don’t forget workers don’t need to be retired to collect OAS. It also isn’t much of a factor for workers with generous pensions who repay part or all of their benefit through the tax system. (Though numbers from Service Canada show only about five per cent of recipients have clawbacks.)

Everyone has a vested interest in the financial health of Canada’s seniors. Not only do we not want them living in poverty, but they’re also consumers. The more disposable income they have, the better off our economy will be — something that will be even more critical as the proportion of seniors rise.

With Canadians living longer and the ability to collect public pensions, the old math doesn’t look sustainable. Many people will likely have forgotten this (or weren’t alive to know) but the eligibility age for OAS used to be 70. Ottawa phased in a drop to the age between 1965 and 1969.

Given all the funding challenges, it’s probably time to have a frank discussion about the future of OAS benefits and how we can build a sustainable retirement income system for all Canadians.

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