How Canada's New Old Age Security Rules effect you.

In a recent World Economic Forum held in Davos, Switzerland, Steven Harper announced to the World that he was thinking of changing the rules governing Canada's Old Age Security. It would have been nice if he'd spoken first to those effected most by this - Canadians. Why am I not surprised at this bold and bald statement?  Because it is just another of the high handed actions performed by our Prime Minister as leader of our elected government.

This week, Jim Flaherty, Federal Minister of Finance tabled his budget, and the new Old Age Security (OAS), and Guaranteed Income Supplement (GIS) rules were presented to the Canadian public.  Flaherty pointed out a number of times that OAS is NOT a pension program (as opposed to the Canada Pension Plan which is), it is a social program, I guess so they can justify pushing back the age of eligibility. [Note:  The OAS plan is funded by Canadians' tax dollars and every Canadian is eligible to receive this benefit (subject to claw back based on income), whereas the CPP is funded by employers and employees and the payout is based on what you contributed during your working life].

The new eligibility rules are a bit complicated, but here's the jist.

If you were born before March 31, 1958, you are not effected. You can still apply for OAS when you turn 65. If you are born after February 1, 1962 you will be entitled to OAS when you turn 67. And in between?  (This is where it gets complicated). For every month after March 31, 1958, your wait time increases by one month. So, if you were born in December 1958, your wait time is 5 months. You have to wait for 5 months after you turn 65 (or until May 2024) to collect your OAS. 

At present, you must apply for OAS. They suggest you apply 6 months ahead as it takes time to process your application. The new proposals for changes in Eligibility for OAS also propose a "proactive system" which will eliminate the need to apply for OAS. I guess that means once you reach the proper age, you'll automatically get it.

So how does this effect you?

There's been some furor over the change in age of eligibility for the OAS and GIS. These range from outrage on behalf of our impoverished elderly, to outrage over the high handed and disrespectful way the government has introduced these changes to the Canadian public.

However, look at the actual numbers and you get a better perspective.  The maximum current OAS entitlement is $540 a month. If your annual income is $69,562 and above, this amount is clawed back, until at $112,772 you have to pay back all the OAS.

The maximum OAS for the year is $6,480. For a couple the amount is $12,960. That's not a lot of money. It won't pay the rent.

If you have to postpone retirement (and I repeat, don't forget, OAS is a Social Program, not a pension program) because of having to wait for OAS payments of $6,480 (which by 2023, when the new eligibility rules kick in will, hopefully, be more) you are definitely not ready to retire!

So what can one do to ease the loss.  The first person in the group that needs to replace the entire 2 years of OAS benefits is now 50.  They have 17 years before they reach 67. If they wanted to replace the amount lost from those 2 years of OAS benefits, I suggest they sock away $2.25 cents a day in a TSFA (the price of a large Timmies). By the time they reach 67, they will have just under $14,000. That should be enough to replace the 2 years lost OAS.