Changing the income level at which seniors are eligible for Old Age Security (OAS) would assist low and middle-income seniors, according to a new study.
Reforming Old Age Security: A Good Start but Incomplete, a study published by the Fraser Institute, examines the current system and makes several recommendations to improve OAS for lower-income seniors.
As the system currently operates, those over 65 can earn up to $70,954 and still receive full OAS payments. Those with incomes up to $114,670 receive partial OAS payments. More than 950,000 (17.5) of Canadian seniors have incomes greater than $50,000. The average annual wage of a Canadian worker is $45,776.
Changing the eligibility requirements for OAS benefits to target only lower-income seniors would help alleviate the financial pressure caused by budget deficits, the study found.
Full OAS benefits should only be paid to seniors with up to $51,100 in annual income, and partial payments should go to seniors with incomes between $51,100 and $94,787, the study recommends. Under these changes, lower and middle-income seniors would see no change to their OAS benefits.
“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,” said Jason Clemens, one of the study’s authors.
Since OAS benefits are calculated per individual, two seniors living in the same household could have a combined income of up to $141,908 while still qualifying for full OAS benefits, Clemens said.
“Ottawa could find savings within OAS by re-evaluating payments paid to higher income seniors and reforming the eligibility criteria,” he said. “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.”
If the study recommendations were implemented, it would save $730 million — an amount that would increase as more seniors become eligible for OAS benefits.
Those savings could be used to re-examine the benefits for single, low-income seniors or to enhance the current programs for savings such as RRSPs and TFSAs.
The government should also adjust the 15 per cent OAS recovery tax (“OAS clawback”) that sees seniors who earn between $70,954 and $114,670 taxed an additional 15 per cent on all income over $70,954.
That tax discourages seniors from staying in the workforce because it is compounded onto regular income taxes, the study said. In total, the recovery tax causes seniors to pay between 47 per cent and 54.4 per cent of their additional earnings in taxes.
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