At the time of writing, the government had not tabled its budget, so the plan for OAS reform was unclear. But ministerial speeches indicate the Conservatives are willing to take on the greying of Canada’s population. At the centre are baby boomers, those Canadians born between 1946 and 1965 (disclosure: I fall into the late-stage boomer category, being born in ’61). The first wave of the baby boom became eligible to collect OAS benefits starting in 2011, when they turned 65. Assuming the program doesn’t change, the last boomers will start collecting OAS benefits in 2030.
In January 2012, OAS benefits amounted to $540 a month — indexed to inflation. The government starts clawing back those payments when net income exceeds $67,668, and the entire amount is clawed back when net income reaches $109,764. To put that in perspective, in 2009, a Canadian male earned an average salary of $45,200, while a female earned $31,100, according to Statistics Canada. The median income for a family was $68,410.
Spending for OAS is funded out of government’s general revenues. The problem is that as Canada’s population ages, spending for OAS will skyrocket, rising to $108 billion in 2030 from $36 billion today, a threefold increase. By 2030, there will be more people over 65 than under 14, with two workers for every one person in retirement, compared to a ratio of 4:1 today. It’s a tremendous burden facing future generations, many who aren’t born or haven’t entered the workforce yet.
They will do so carrying an inordinate amount of student debt. The average student loan upon graduation is $27,000, according to the Canadian Federation of Students. They will also be paying much more for a house than their parents and grandparents did and it’s unlikely they will see the kind of rise in property values that have fuelled much of the rise in wealth over the past few decades.
The OAS was first introduced in 1952. It was modified in 1965 to accommodate the creation of the Canada Pension Plan. In 1967 it was amended to create the Guaranteed Income Supplement. The system has been credited with providing Canadian seniors a stable form of income. Interestingly, the original age for benefits to kick in was 70, which dropped to 65 in 1969. During that time, the life span of Canadians has expanded and most can expect to live into their 80s.
Moreover, recent surveys suggest Canadians expect to work beyond the normal retirement age of 65. A survey by Sun Life Financial in late 2011 found that less than one-third of Canadians expect to be fully retired at 66 and 48 per cent plan to ease into retirement and continue working part time. A retirement target of 65 seems outdated in a world where 60 is the new 40. In fact, some countries are raising their mandatory retirement age to 67 or more.
There has been much teeth gnashing over the Conservative government’s move to tackle OAS reform. Much of the consternation seems unnecessary. The government said it won’t impact existing seniors and changes will be phased in. There is ample wiggle room to rein in costs by raising age eligibility requirements or lowering claw-back thresholds. OAS should be a social program to support those most in need — a safety net and not a meal ticket for all.
This is more about defining what government should be and foisting responsibility on Canadians to ensure they are preparing and saving appropriately for retirement. Most working Canadians don’t contribute to RRSPs or TFSAs, the programs designed to help them save and get through their retirement years.
It shouldn’t be the government’s responsibility to provide for all. Governments in Canada cannot continue to be all things to all people. Just ask Greece, or for that matter Ontario. The recent Drummond report warns that without tackling serious issues, such as public pensions and overspending, Ontario is on track to run $30-billion deficits. That will bankrupt the province.
It’s been 45 years since the OAS act faced serious amendments. That’s a long time in politics. Kudos to Canadian politicians for tackling the sacred cow of OAS reform. It’s time boomers paid their own way, while they still have working years left to save. It’s the least we can do for future generations.
Jim Middlemiss blogs about the legal profession at WebNewsManagement.com. You can follow him on Twitter @JimMiddlemiss and he can be reached at email@example.com.