Why Canada needs to expand its public pension system
Changes in OAS would affect women and low income seniors most
A version of this commentary appeared in the Star Phoenix,iPolitics.ca, and the Hill Times
The Prime Minister’s recent musings in Davos about raisingthe age of entitlement for Old Age Security (OAS) from 65to 67 start an appropriate discussion — but are toosimplistic.In fact, the idea of raising the age of eligibility for publicpensions in Canada is not new. It was proposed to theTrudeau government in 1977 by the federal Task Force onRetirement Income Policy. They advised a lead time of atleast 20 years before any changes should occur, andsuggested change should take place very gradually, as has been occurring in the U.S.So why single out the OAS? The Prime Minister has said that we need to ensure OAS remains fiscallysustainable for the longer term, while the Canada (and Quebec) Pension Plans (C/QPP) are fine. But thisclaim, and most of the media coverage that followed, has ignored the Chief Actuary’s reports to Parliament,which shows that OAS disproportionately supports women, especially widows, since unlike C/QPP, OAS doesnot depend on prior earnings.OAS is also more important for poorer seniors than C/QPP, especially through the Guaranteed IncomeSupplement (GIS) which benefits those with lower incomes.The government’s musings have not yet been clear on GIS, but if the age for GIS were also raised to 67, itwould really hit those with low incomes hard. It could also shift hundreds of millions in costs to provincialgovernments given that low income seniors who could no longer rely on GIS until a later age might have togo on provincially-funded Social Assistance.In truth, the issue of fiscal sustainability for OAS should not have emerged at all.OAS expenditures are one of the easiest of major government expenditures to project, and they areregularly tabled in Parliament. If OAS costs are now an issue, then what was the government thinking whenthey introduced Tax Free Savings Accounts (TFSAs) in 2009? Income from TFSAs is exempt from incometax, and by the same rules, this source of income does not reduce GIS benefits.The Chief Actuary in his June 2011 report to parliament estimated that TFSAs will eventually increaseOAS/GIS costs by $4.2 billion per year — not because seniors will have more income, but simply becauseless of their income will be counted in determining GIS eligibility. And why is the Prime Minister worrying about the fiscal sustainability of OAS, when his Minister of Financehas been saying all along that the real issue is that Canadians are not saving enough for their retirement?Nothing is more efficient and cost-effective than the C/QPP: it is simple, automatic, has extremely lowadministrative costs and works for everyone.If anything, Canada needs to expand its public pension system.