Canada Can Afford OAS
Feb 24, 2012
boom, electro-motive, gis, increase
The Harper government recently created a significant level of concern with its admittance that it is considering raising the age of eligibility for Old Age Security (OAS) to 67 from 65 because the system is “unsustainable.”
The basic building block of Canada’s retirement income system, the OAS is a flat rate monthly benefit that goes to everyone at age 65, provided they meet certain residency requirements. However, according to the Prime Minister, the program will not be able to accommodate the retirement of the baby boom generation over the next 20 years, so something has to be done in the very near future.
Pension experts don’t agree with Harper that the age for OAS eligibility needs to be increased. A 2010 paper on Canada’s pension system authored by the Edward Whitehouse, leader of the pensions team at the OECD, stated that “long-term projections show that the public retirement income system is financially sustainable…there is no pressing financial or fiscal need to increase pension ages in the foreseeable future.”
At first blush, it might appear that there is reason for concern. The number of OAS beneficiaries is expected to almost double over the next 20 years, growing from 4.7 million in 2010 to 9.3 million in 2030 as baby boomers retire. Total annual expenditures of OAS and the Guaranteed Income Supplement (GIS) are projected to increase from $36.5 billion in 2010 to $48.3 billion in 2015 and $108 billion by 2030. But these costs reflect inflation. There is no indication of what the cost would be in 2012 dollars.
When looked at in the context of the total resources of the economy, OAS/GIS spending will go from 2.3 percent of Gross Domestic Product (GDP) in 2010 to 3.1 percent in 2030. That’s a rather small increase. Canada also traditionally allocates a smaller percentage of its total GDP to public pensions than most European countries – as well as the United States – do.
At the end of the day, increasing the age of eligibility for OAS would have the biggest impact on lower-income earners who would be forced to go on working for at least another two years until eligible for their benefits. Higher income earners are more likely to have other sources of retirement income so they also likely have more choice of when to retire.
Hopefully the government realizes that the OAS is sustainable into the forseeable future and doesn’t require adjustments of any sort.
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Being in my thirties, I have to wonder if OAS will exist when it's time for me to retire, if retirement is even an option in 2030.
Jeremy - 2012-03-01 11:50