A Parliamentary committee is studying a private member’s bill that proposes increasing Old Age Security by 10 per cent for seniors aged 65 to 74. If passed, the bill would level the playing field between these seniors and those 75 and older, who saw their OAS increase by 10 per cent in 2022.
A strong case can be made that the program should not differentiate between seniors based on their age. But any step to increase Old Age Security is a step in the wrong direction.
Old Age Security is one of Canada’s costliest social programs and represents an enormous transfer of taxpayer money to seniors. This would not necessarily be an issue if Old Age Security was designed to address a targeted social need. But it doesn’t.
The program’s eligibility criteria are broad, enabling millions of Canadians who are not in financial need to receive other Canadians’ money.
Consider the numbers.
Old Age Security is distributed to 7.3 million seniors, out of a total of 7.6 million. Seniors aged 75 and older are eligible for the maximum OAS payout of $784.67 per month if they earn less than $81,761. That amounts to a yearly transfer of $9,400 to someone who may be collecting $80,000 from the Canadian Pension Plan, a company pension, RRSPs or other investments.
Seniors earning between $81,761 and $148,179 receive Old Age Security, some of which is clawed back. Only those seniors earning above $148,179 are entirely ineligible. And because seniors are able to use income-splitting for most pension income, a senior couple who together earn as much as $280,000 could still receive some Old Age Security.
Of course, many seniors do not collect anywhere close to $80,000 from pensions or other investments. These individuals may well be struggling to make ends meet in retirement. There is a clear case for the government to help ensure these people can live with dignity.
But Ottawa already has a program for this: the Guaranteed Income Supplement, which 2.5 million seniors receive in addition to Old Age Security.
To qualify for the Guaranteed Income Supplement, a single senior’s income must be below $21,624. Seniors in relationships qualify only at higher thresholds which depend on the source of the partner’s income.
To their credit, the Liberal government increased the Guaranteed Income Supplement benefit for single seniors, who are more likely to experience poverty than seniors in relationships. This focus on expanding the Guaranteed Income Supplement was sensible. Expanding Old Age Security is not.
Collectively, Old Age Security and the Guaranteed Income Supplement cost $69.4 billion in 2022-2023. That amount is projected to rise to $101.3 billion in 2027-2028, according to Ottawa’s fall economic statement.
These are enormous sums, against a backdrop where the government is planning to introduce or expand social programs that also have vast costs. These include $10-a-day daycare, public dental care and pharmacare.
Canada is also coming under increased pressure from NATO leadership and its allies to meet the NATO spending target of two per cent of GDP. Meeting this target will entail an additional $20 billion in funding a year. As Canadian Affairs argued last week, Canada has a moral obligation to meet this commitment.
By refocusing its spending on seniors to better target those in need, the government would unlock substantial resources that could be redirected to higher impact areas.
With their track record of expanding seniors’ programs, it is improbable that a Trudeau government will broach this change. The Harper Conservatives had planned to increase OAS and GIS eligibility from age 65 to 67, but the Liberals reversed this decision. It was also this government that raised Old Age Security for seniors 75 and older by 10 per cent.
Thus, there is an opportunity for the Poilievre Conservatives, who at least rhetorically favour fiscal discipline, to differentiate themselves by proposing bold reform. Unfortunately, this also seems unlikely given that seniors are such a politically powerful voting block. But one way to make reform politically palatable would be to grandfather in changes, gradually redirecting OAS payments to GIS and other priority areas.
With Old Age Security indexed to inflation and Canadians living longer, Old Age Security costs will rise at alarming rates unless major reform is initiated. Canada needs leaders prepared to put forward a honest, sensible plan to pay for the highest priority programs.
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