Old Age Insecurity
At 150, Canada is getting older, and so is its population. For the first time in our country’s history, there are more seniors living in Canada than there are kids. This new reality puts the very solvency of some of the biggest government programs at risk. While we have known this reality was bound to happen for quite some time, the government has not taken any measure to ensure adequate funding would be available for such programs, choosing to ignore a problem which, every day, is getting increasingly costly to deal with.
Among those programs are the three key income programs for seniors: Canada Pension Plan, the Guaranteed Income Supplement, and Old Age Security. The first, Canada Pension Plan, is currently partially funded through a dedicated fund, which leads to a whole other set of issues to be tackled in another article. The second, Guaranteed Income Supplement, while unfunded, only covers seniors living with very low annual incomes and is a much smaller expenditure compared to the third and last one: Old Age Security, or OAS. In 2015-2016 alone, OAS accounted for roughly three quarters of all transfers to seniors made from general government revenue. This program alone costs over $35 billion every year and is funded through the very same year’s taxes!
While it is true OAS helps numerous low-income seniors get by every month, it is far from true that every OAS recipient that is in a low-income situation. Currently, seniors making less than $73,756 get full benefits regardless of their pre-retirement incomes. The benefits get clawed back so slowly that one can receive partial benefits up to an annual income of $119,400 per year. That can hardly be described as low-income. Just in 2014, there were nearly a million people eligible for OAS making over $50,000 per year, which is not a very low-income. This ends up costing Canadians billions of dollars every year, as we subsidize the well-off.
The other issue is how this program does not account for past employment revenues. Someone’s ability to save for their retirement is not the same if they are making $17,000 per year than if they are making $117,000 per year. Yet, if neither of them is getting pension income after their retirement, they are getting the exact same top-up from the federal government. Their financial gains would be the same, even though their needs are very different. It is not the government’s role to subsidize high earners, even after their retirements.
As expensive as this program already is, its cost is expected to rise sharply as more and more baby boomers retire. On the other hand, less and less young Canadians are entering the job market. Ultimately, this means there will be less and less workers and taxpayers to shoulder the cost of programs like OAS.
If Old Age Security is to remain sustainable, it needs to be reformed. OAS benefits should not be granted to wealthy Canadians earning large post-retirement incomes. Post-retirement income does not adequately represent a retiree’s standard of living. A solution would be for OAS to be asset tested, rather than income tested, meaning whether or not one receives a check, and how big that check is, would be dependent on how much money, or other assets, they have in the bank. By enacting such a reform, we would make sure that, if the government is to help prop-up impoverished seniors, it would limit itself to doing just that, rather than propping-up everyone at young Canadians’ expense.
By applying those two fixes, Old Age Security could truly be targeted towards giving security to low-income seniors, rather than making future generations financially insecure.