Reversing a plan to raise the retirement age to 67 from 65 will eventually cost the government an additional $11.2 billion a year.
The Liberals had pledged to undo the Conservative decision, which would have gradually phased in the new age requirements for Old Age Security starting in 2023.
The dollar figure for that move was included in a new report this week from Parliamentary Budget Officer Jean-Denis Fréchette.
The decision is welcome news from those facing the prospect of waiting an additional two years to collect benefits, specifically those most in need of Old Age Security and Guaranteed Income Supplement (OAS/GIS).
When the policy was announced by the previous government, critics were quick to jump all over any plan to reduce benefits, while acknowledging the need for changes.
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OAS and GIS are both important contributors to the well-being of today’s seniors, many of whom could not survive financially without the programs. Yes, seniors as a group have more disposable income than ever before, but not every one of them is leading the Freedom 55 lifestyle.
As the current debate over pension reform indicates, many Canadians have no work-related pension and very little in the way of retirement savings. Ideally, we would see changes to the Canada Pension Plan to provide long-term, self-funded retirement benefits, but we’ve seen little leadership on that front. In the meantime, supplementary programs are needed, despite being a draw on general tax coffers.
Until retirement income is stabilized, OAS and GIS are the great equalizers. One thing is clear: demand will grow, as we’re an ageing society. That’s why reform is needed today in order to change course over the next generation or two.
Keeping the qualification age at 65 is good for certain individuals, but comes with a price tag, as the PBO notes.
In 2014-15, 5.6 million Canadians received Old Age Security, with payments totaling $44.1 billion. According to a Government of Canada report, seniors with an annual income of under $20,000 tend to rely on OAS and GIS to provide roughly half of their retirement income.
The OAS program is funded through general tax revenues and provides a basic monthly income for Canadian seniors. The Canada Pension Plan, on the other hand, is funded through contributions by Canadian workers, their employers and the self-employed and through investment earnings on the Plan’s funds. In addition to retirement benefits, the Plan provides disability, death, survivor and children’s benefits.
Clearly, pensions are a much better and less costly way to provide income security to Canadian retirees. Still, the CPP provides just 25 per cent of a worker’s average annual earnings – hardly enough for a comfortable retirement, which is where programs like Old Age Security and the Guaranteed Income Supplement come into play. That level has been consistent since the program was introduced five decades ago. Payments for current recipients come partly from invested reserves and partly from contributions from today’s workforce. In order to ensure a more stable system and to provide a decent retirement income, we’ll have to start boosting CPP contributions.
Even if we see some pension reform – ideally something much better than Ontario’s flawed plan – the tripling of demand expected as the Baby Boomers retire means more people in absolute terms will be dependent on the programs.
Changes are needed. But it’s pension reform, not cuts that will provide long-term security.