The Canadian Old Age Security system is a socially planned safety net that offers financial assistance to every elderly Canadian over the age of 65 – regardless of qualifications or employment history. Citizens who are on record as on a low income are able to qualify for additional aid in the form of payments from the Guaranteed Income Supplement plan and the Allowance for Survivor plan.
The pension system pays out an amount that ranges from approximately $6400 to $8750 each year to the 5 million or so senior citizens that it has on its rolls. It’s a commitment that costs the taxpayer more than $35 billion a year.
What are the changes?
The pension system has attracted some criticism over the years. Critics point to the drain on the nation’s resources that pension payments represent. These criticisms were formally recognized by the government in the Budget of 2012. The cost-saving measures announced in the budget will affect millions of future pensioners. Starting with the year 2023, 10 years from now, the elderly will only be eligible to seek the assistance of the GIS and OAS systems when they turn 67 – two years later than the current age of eligibility.
The changes announced do not affect anyone who currently collects OAS or GIS benefits. They only affect people born on or after April 1, 1958. If the law were unchanged, a person born on this date would qualify for his pension and income benefits the day he turned 65 on April 1, 2023. With the changed laws, such a person will only qualify on April 1, 2025, instead.
There’s some good news
The revised OAS rules introduce an option that US citizens have long been familiar with – pension deferral. The new rules went into effect in July 2013. Under these rules, the elderly are able to exercise the option to hold off on applying for their pensions for anything up to five years. They could continue to be a part of the workforce until then. When they agree to saving the system some money by putting off their pension in this way, the reward is a higher monthly pension.
Proactive enrollments are another welcome change. Traditionally, it’s been incumbent upon senior citizens to determine when they turn eligible for their pension and to apply. From now on, though, the OAS and GIS system will seek out eligible seniors and enroll them on its own.
Why exactly are these changes called for?
As in other countries like the US, calls for change have come from those concerned about the inability of the country to afford a $38 billion pension bill each year. Like many advanced societies, Canada has a slow population growth rate. With fewer young people entering the workforce (and paying taxes) and an increasing number of people leaving it and getting on the pension rolls each year, many worry that the country will one day be unable to support its pensioners financially.
Critics of the pension scheme point to the fact that the country’s current pension plans were first devised at a time when people didn’t live far past 70. With a rising life expectancy rate, the pension system is expected to need more than $100 billion to meet its pension obligations by the year 2030 – 21% of the country’s entire tax receipts.
What people need to do to prepare for these changes in 10 years
Since the age of eligibility for old-age pension is being raised to 67 (or 72, if you plan to defer your pension for five years in return for a pension raise), you need to prepare for your old age by saving and investing for a larger nest egg. Financial products from services like Kanetix can help people plan for their future.
You do need think of the additional years that you will need support yourself.
Robert Conway is currently caring for both of his aging parents. When he has spare time, he enjoys sharing what he has learned by posting online.