Last week, Canadian Affairs covered a Senate report that recommends Ottawa reform Old Age Security to “free up” money to support unemployed youth.
Specifically, the report recommends basing OAS clawbacks on household income, rather than individual income — and beginning clawbacks when a household’s income hits $100,000.
Our article triggered an outpouring of emails from readers. Most said they adamantly disagreed with the proposal.
Common responses included that seniors are financially stretched with the payouts they do receive; that seniors planned their retirement around the existing rules; that they paid into OAS in their working years and are therefore entitled to these payouts.
While these concerns have merit, our editorial board thinks the case for OAS reform is clear. We think most objections to reform could actually be countered with a sensible, clearly communicated reform framework.
The case for reform
The argument for OAS reform is simple: at $68 billion a year, OAS is Ottawa’s costliest social program and also one of its most indiscriminate.
Many Canadian seniors have considerable net wealth. A 2023 Statistics Canada survey of Canadians nearing retirement age found that those who owned their principal residence and had an employer-sponsored pension plan had a median net worth of about $1.4 million.
By contrast, those who rented and did not have an employer-backed pension had a median net worth of $11,900.
Clearly, there is a huge discrepancy in the means of people in their retirement years. Some are in great need; others are not.
The Senate report — which draws on a report by University of British Columbia professor Paul Kershaw — estimates $14 billion a year goes toward OAS subsidies for high-income retiree households. The report does not define this term, but we know from OAS rules that couples can collectively earn about $300,000 a year before seeing their OAS fully phased out.
Sensible OAS reform would ensure payouts are better targeted to those in need — such as the approximately 400,000 senior Canadians who still live below the poverty line.
Basing OAS payouts on household income rather than individual income would help achieve this more equitable outcome.
Eligibility for most of Canada’s existing social benefits — including the Canada Child Benefit, the Guaranteed Income Supplement and dental care — is based on household income. The reason being that household income is what generally matters when assessing someone’s level of need. A stay-at-home mom, for example, can be very financially comfortable if she is married to a high-earning spouse.
Admittedly, policymakers have long debated the merits of tying benefits to household income. The key argument against doing so is that it can penalize the lower-earning spouse — who is statistically more likely to be female — by creating a disincentive for them to work.
But this argument does not apply well to OAS. OAS exists to support people in their retirement years, who are likely not working.
Readers who say they are already financially stretched even with current OAS payouts are unlikely to be the individuals deeply affected by OAS reform.
Kershaw’s policy report recommends OAS clawbacks begin at $100,000 and disappear entirely when household income nears about $160,000. This would affect about 20 per cent of seniors, the report says.
As Kershaw himself told Canadian Affairs, such a reform would not be “anti-senior.” It would free up resources to benefit marginalized youth, but also low-income seniors through the existing GIS program or individuals living with disabilities.
Other readers noted their retirement planning was based around current levels of OAS support. This is a fair concern, and makes the case for grandfathering in OAS reforms — rather than scrapping them altogether.
The Harper government took this approach when it raised the OAS eligibility age from 65 to 67 in 2012. It said the phased change would start in 2023, giving Canadians ample time to prepare. (Unfortunately, the Trudeau government reversed that sensible reform in its 2016 budget.)
Finally, some readers claimed they are entitled to OAS because they paid for it throughout their working lives. This is not exactly accurate.
Unlike Canada Pension Plan, which is paid to those who paid into the program, OAS is paid to all eligible recipients irrespective of their employment status or past tax contributions. OAS is funded entirely from current tax revenues, which means it is actually today’s taxpayers who are paying for today’s OAS obligations.
True, current seniors contributed to the OAS of past generations. But the program was less generous then: when OAS was introduced in 1952, it paid about $443 a month (in today’s dollars) to residents 70 years and older, at a time when the average life expectancy was about 69.
Today, Canadians become eligible at 65, live to an average age of 83, and receive up to $743 or $817 a month, depending on the recipient’s age and income.
There were also proportionately more working adults back then to pay for these benefits. In 1966, there were 7.7 working-age individuals for every senior; in 2022, it was less than half that. By 2068, it is projected to be 2.3.
OAS in its current form needs to be reconsidered. In a world of finite resources, reducing benefits for the highest-income senior households is the best way for the government to raise the well-being of the nation.
There are far too many “young Canadians” who are on welfare, receiving child tax benefits, and other social supports. I personally know 6 individuals under 30 years old who have never filed their income tax, never held a job for more than 3 months, and live off their parents or grandparents.
How can we consciencely treat our elders as if they were already dead, without enough income or support to live with respect? The divide between the haves and have nots is not just about age, or job availability. Mostly it is about unrealistic expectations.
In the sixties and seventies, young employable folks went to where the jobs were. They did not expect to live in The Emerald City (Vancouver) on subsidies. They did not expect full time free daycare, while on welfare and not even looking for work. Handouts at the holidays, free counseling and medical, support for the poor single moms – so many ways our tax dollars are directed to the unmotivated youth – this is what needs to stop.
Having a baby should not mean that you don’t need to work for twenty years. What is to motivate our young Canadians if everything is given to them?
In my opinion, what we need is more multi generation homes. More seniors homes beside elementary schools. More elder communities with less glitter and lower costs. Canadian reality has and always will be based on the small towns, not the glitter of city lights. Family values, and the ability to purchase simple homes only exist outside of the big smoke. In a multi generational home, Grandparents receive support for things their bodies no longer can do; children are raised by their own family members in their own homes; and adults are supported by the wisdom of their elders.
The expectation of buying a first time home in the city of your dreams, with two or more bathrooms and 4 or more bedrooms is outrageous. Two cars, two careers, two homes, $5 a day subsidized day care, weeks on end of paid holidays – it’s unreal what young people not only dream of, but expect. More benefits need to be doled out based on contributions, such as the CPP. Lean on your family, instead of robbing all of the Canadian elders. We have worked our entire lives and deserve the dignity to retire with respect.