Think tank calls for tightened OAS eligibility

By Stefania Di Verdi on October 1, 2013
Estimated reading time: 3 minutes

The Fraser Institute is calling on Ottawa to lower the income threshold for OAS payments and increase clawbacks in order "to better target lower and middle-income seniors."

The Fraser Institute is calling on the federal government to further tighten Old Age Security eligibility rules in an effort to “to better target lower and middle-income seniors.” The report released Tuesday suggests lowering the income threshold for full OAS payouts as well as adjusting the OAS recovery tax or “clawback.” Last year, Ottawa announced it would hike the age at which seniors start collecting OAS benefits to age 67 from 65 starting in 2023. The changes don’t go far enough, according to the Fraser report entitled “Reforming Old Age Security: A Good Start but Incomplete.” Specifically, report authors Jason Clemens, Niels Veldhuis and Milagros Palacios suggest dropping the income eligibility threshold for full OAS payments from $70,954 to $51,100. The clawback for partial payments would also kick in for Canadian seniors earning more than $51,100 and those making more than $94,787 would receive no OAS payments whatsoever. Today, seniors making $114,670 are cut off from OAS payments completely. The OAS is one of three pillars in the government’s social assistance program for seniors including the CPP and GIS. As of the fourth quarter of 2013, the maximum OAS benefit is $550.99 per month, according to Service Canada. If the OAS clawback threshold was reduced to $51,100 today as the Fraser report is suggesting, the pensioner who was earning $71,000 would see his OAS benefit reduced to about $300 a month, according to Fred Vettese, chief actuary at Morneau Shepell. The Fraser Institute maintains that under its proposed system, low-income and middle-income seniors will see no change in their OAS benefits. Roughly 17.5% of Canadian seniors earn more than $50,000 annually and even fewer would be affected by tougher clawbacks. “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,” Clemens said in a release. The average working Canadian makes $45,776, the report says. Clemens also points out that since OAS benefits are calculated on an individual basis, it’s possible for two seniors living together to have a household income of $141,908 and still qualify for OAS payments. Ottawa could find savings of $730 million today if it made the above changes and that number would grow over time as more Canadians become eligible for retirement programs, the report said. Vettese says the proposed changes would be unpopular with the general public and wouldn’t net federal coffers much money anyway. Furthermore, the changes are unnecessary. “I don’t believe sustainability of the current OAS program is a major issue since the growing OAS expenditures will be minor relative to the rising cost of health care,” he said. “If we are going to make further reforms to OAS, it should be in the interests of fairness and getting more for our tax-dollars rather than because of sustainability concerns.” Vettese did say however that reducing the clawback rate (currently 15%) could be a positive change since the current system is a real deterrent to staying in the work force past traditional retirement age. Seniors working and earning extra income (over the clawback threshold) may decide that the extra take home pay isn’t worth the OAS money they’ll be leaving on the table. The government has a lot of work to do in simplifying Canada’s pension system including harmonizing the retirement age across the OAS, CPP and occupational pension programs not to mention ensuring that those who will rely on GIS income in retirement won’t pay a hefty penalty for participating in the forthcoming Pooled Registered Pension Plans (PRPPs).